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CHALLENGES FACINGMULTIEMPLOYER 

PENSION PLANS: REVIEWING THE 

LATEST FINDINGS BY PBGC AND GAO 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR, AND PENSIONS 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, DC, MARCH 5, 2013 

Serial No. 113–8 

Printed for the use of the Committee on Education and the Workforce 

( 

Available via the World Wide Web: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=education 

or 

Committee address: http://edworkforce.house.gov 

(II) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN KLINE, Minnesota, Chairman 

Thomas E. Petri, Wisconsin 

Howard P. ‘‘Buck’’ McKeon, California 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Tom Price, Georgia 

Kenny Marchant, Texas 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Scott DesJarlais, Tennessee 

Todd Rokita, Indiana 

Larry Bucshon, Indiana 

Trey Gowdy, South Carolina 

Lou Barletta, Pennsylvania 

Martha Roby, Alabama 

Joseph J. Heck, Nevada 

Susan W. Brooks, Indiana 

Richard Hudson, North Carolina 

Luke Messer, Indiana 

George Miller, California, 

Senior Democratic Member 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Rush Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

David Loebsack, Iowa 

Joe Courtney, Connecticut 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

John A. Yarmuth, Kentucky 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

Barrett Karr, Staff Director 

Jody Calemine, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS 

DAVID P. ROE, Tennessee, Chairman 

Joe Wilson, South Carolina 

Tom Price, Georgia 

Kenny Marchant, Texas 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Scott DesJarlais, Tennessee 

Larry Bucshon, Indiana 

Trey Gowdy, South Carolina 

Lou Barletta, Pennsylvania 

Martha Roby, Alabama 

Joseph J. Heck, Nevada 

Susan W. Brooks, Indiana 

Luke Messer, Indiana 

Robert E. Andrews, New Jersey, 

Ranking Member 

Rush Holt, New Jersey 

David Loebsack, Iowa 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Rube ́n Hinojosa, Texas 

John F. Tierney, Massachusetts 

Rau ́l M. Grijalva, Arizona 

Joe Courtney, Connecticut 

Jared Polis, Colorado 

John A. Yarmuth, Kentucky 

Frederica S. Wilson, Florida 

(III) 

C O N T E N T S 

Page 

Hearing held on March 5, 2013 .............................................................................. 1 

Statement of Members: 

Andrews, Hon. Robert E., ranking member, Subcommittee on Health, 

Employment, Labor, and Pensions .............................................................. 3 

Roe, Hon. David P., Chairman, Subcommittee on Health, Employment, 

Labor, and Pensions ..................................................................................... 1 

Prepared statement of ............................................................................... 3 

Statement of Witnesses: 

Force, Harold F., PE, president, Force Construction Company, Inc. ........... 21 

Prepared statement of ............................................................................... 22 

Gotbaum, Hon. Joshua, Director, Pension Benefit Guaranty Corp. ............. 6 

Prepared statement of ............................................................................... 7 

Jeszeck, Charles, Director, Education, Workforce, and Income Security, 

Government Accountability Office ............................................................... 15 

Prepared statement of, Internet address to ............................................ 17 

Perrone, Anthony M., secretary-treasurer, the United Food and Commercial Workers International Union ................................................................ 17 

Prepared statement of ............................................................................... 19 

Additional Submissions: 

Director Gotbaum’s response to questions submitted for the record ........... 49 

Chairman Roe: 

The National Electrical Contractors Association, prepared statement 

of .............................................................................................................. 46 

The U.S. Chamber of Commerce, prepared statement of ...................... 44 

Questions submitted for the record ......................................................... 48 

Scott, Hon. Robert ‘‘Bobby’’ C., a Representative in Congress from the 

State of Virginia, questions submitted for the record ................................ 48 

(1) 

CHALLENGES FACING MULTIEMPLOYER 

PENSION PLANS: REVIEWING THE 

LATEST FINDINGS BY PBGC AND GAO 

Tuesday, March 5, 2013 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor, and Pensions 

Committee on Education and the Workforce 

Washington, DC 

The subcommittee met, pursuant to call, at 10:00 a.m., in room 

2175, Rayburn House Office Building, Hon. David P. Roe [chairman 

of the subcommittee] presiding. 

Present: Representatives Roe, Wilson, Guthrie, Brooks, Messer, 

Andrews, Scott, Hinojosa, Tierney, and Wilson. 

Also present: Representatives Kline and Miller. 

Staff present: Andrew Banducci, Professional Staff Member; 

Katherine Bathgate, Deputy Press Secretary; Casey Buboltz, Coalitions and Member Services Coordinator; Ed Gilroy, Director of 

Workforce Policy; Benjamin Hoog, Legislative Assistant; Marvin 

Kaplan, Workforce Policy Counsel; Nancy Locke, Chief Clerk/Assistant to the General Counsel; Brian Newell, Deputy Communications Director; Krisann Pearce, General Counsel; Nicole Sizemore, 

Deputy Press Secretary; Todd Spangler, Senior Health Policy Advisor; Alissa Strawcutter, Deputy Clerk; Mary Alfred, Minority Fellow, Labor; Tylease Alli, Minority Clerk/Intern and Fellow Coordinator; John D’Elia, Minority Labor Policy Associate; Daniel Foster, 

Minority Fellow, Labor; Richard Miller, Minority Senior Labor Policy Advisor; Michele Varnhagen, Minority Chief Policy Advisor/ 

Labor Policy Director; and Michael Zola, Minority Deputy Staff Director. 

Chairman ROE. A quorum being present, the subcommittee on 

Health, Employment, Labor and Pensions will come to order. 

Good morning. I would like to welcome our guests and thank our 

witnesses today for being here. This is the latest in a series of 

hearings examining the multi-employer pension system, and each 

time we have assembled a distinguished panel of witnesses to offer 

their unique experience and expertise on this very important topic. 

I am very pleased today is no different. 

I would like to also note that throughout our oversight of multiemployer pensions, the committee has maintained a spirit of bipartisan cooperation. We are addressing difficult issues with no simple 

answers. As we continue examining the strengths and weaknesses 

of the system’s—nation’s pension system and begin discussing posVerDate Nov 24 2008 10:38 Jan 13, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\DOCS\113TH\HELP\113-8\79502.TXT DICK
2 

sible reforms, I hope we will do so with a sincere commitment to 

working together and advancing reforms that best serve the American people. 

Since we last met, a number of headlines have announced key 

developments involving multi-employer pensions. In late January, 

the PBGC released three long-overdue reports that together offer 

a very detailed examination of the system. The facts they provide, 

however, are deeply troubling. Plans have $757 billion in benefit liabilities and a staggering $391 billion in unfunded obligations. 

The reports also reveal roughly one out of every four plans is in 

‘‘red zone’’ critical status, experiencing immediate and significant 

funding problems. Only 39 percent of participants are active employees, which confirms a disturbing demographic trend we have 

discussed during previous hearings. Additionally, there is a 90 percent chance the PBGC’s multi-employer insurance program will be 

insolvent in less than 20 years. 

The second round of news to attract our attention was the release by a report of a National Coordinating Committee of Multiemployer Plans. For over a year, members of the NCCMP’s Retirement Security Review Commission worked diligently to try and 

craft reforms that tackle the structural problems plaguing the system and garner the support of both business and labor leaders. 

Their report, entitled ‘‘Solutions, Not Bailouts’’ is further proof 

that there is no easy way to address the challenges facing the 

multi-employer pension system. The report also serves as an important reminder that common ground can be found when stakeholders work together in good faith and make tough choices. We 

will continue to carefully review their recommendations in the 

weeks ahead. 

Finally, today we will be making some news of our own. In 2011, 

Chairman Kline asked the nonpartisan Government Accountability 

Office to examine the multi-employer pension system, including the 

effects of legal changes enacted by Congress in recent years. 

While its report is not yet final, a representative from GAO is 

with us today to discuss their preliminary findings. The study provides an independent analysis of the PBGC’s financial challenges 

and an overview of various policy proposals intended to prevent the 

future insolvencies of severely underfunded plans. 

The GAO report also outlines the difficult choices plan trustees 

must confront as they try desperately to steer clear of insolvency. 

Too often the only options available to plans, such as steep increases in contributions employers pay or reducing workers’ future 

benefits, can’t arrest the steady decline of many plans. 

Armed with the facts, we must begin charting a new and better 

course. Thousands of employers who participate in multi-employer 

pension plans are counting on us. Men and women searching for 

work and hoping these employers create new jobs are counting on 

us, and millions of workers and retirees who rely upon the multiemployer pension system for their future income security are 

counting on us 

Again, I would like to thank our witnesses for being with us. I 

will now recognize my distinguished colleague, Representative Andrews, the senior Democratic member of the subcommittee, for his 

opening remarks. 

3 

[The statement of Chairman Roe follows:] 

Prepared Statement of Hon. David P. Roe, Chairman, 

Subcommittee on Health, Employment, Labor and Pensions 

Good morning. I would like to welcome our guests and thank our witnesses for 

joining us today. This is the latest in a series of hearings examining the multiemployer pension system, and each time we have assembled a distinguished panel of 

witnesses to offer their unique experience and expertise on this very important 

topic. I am pleased today is no different. 

I would also note that throughout our oversight of multiemployer pensions, the 

committee has maintained a spirit of bipartisan cooperation. We are addressing difficult issues with no simple answers. As we continue examining the strengths and 

weaknesses of the nation’s pension system and begin discussing possible reforms, 

I hope we do so with a sincere commitment to working together and advancing reforms that best serve the American people. 

Since we last met, a number of headlines have announced key developments involving multiemployer pensions. In late January, the PBGC released three long 

overdue reports that together offer a very detailed examination of the system. The 

facts they provide, however, are deeply troubling. Plans have $757 billion in benefit 

liabilities and a staggering $391 billion in unfunded obligations. 

The reports also reveal roughly one out of every four plans is in ‘‘red zone’’ critical 

status, experiencing immediate and significant funding problems. Only 39 percent 

of participants are active employees, which confirms a disturbing demographic trend 

we’ve discussed during previous hearings. Additionally, there is a 90 percent chance 

the PBGC’s multiemployer insurance program will be insolvent in less than twenty 

years. 

The second round of news to attract our attention was the release of a report by 

the National Coordinating Committee on Multiemployer Plans. For over a year, 

members of the NCCMP’s Retirement Security Review Commission worked diligently to try and craft reforms that tackle the structural problems plaguing the system and garner the support of both business and labor leaders. 

Their report, entitled Solutions, Not Bailouts, is further proof that there is no 

easy way to address the challenges facing the multiemployer pension system. The 

report also serves as an important reminder that common ground can be found 

when stakeholders work together in good faith and make tough choices. We will continue to carefully review their recommendations in the weeks ahead. 

Finally, today we will be making some news of our own. In 2011, Chairman Kline 

asked the nonpartisan Government Accountability Office to examine the multiemployer pension system, including the effects of legal changes enacted by Congress 

in recent years. While its report is not yet final, a representative from GAO is with 

us today to discuss their preliminary findings. The study provides an independent 

analysis of the PBGC’s financial challenges and an overview of various policy proposals intended to prevent the future insolvencies of severely underfunded plans. 

The GAO report also outlines the difficult choices plan trustees must confront as 

they try desperately to steer clear of insolvency. Too often the only options available 

to plans, such as steep increases in contributions employers pay or reducing workers’ future benefits, can’t arrest the steady decline of many plans. 

Armed with the facts, we must begin charting a new and better course. Thousands of employers who participate in multiemployer pension plans are counting on 

us. Men and women searching for work and hoping these employers create new jobs 

are counting on us. And millions of workers and retirees who rely upon the multiemployer pension system for their future income security are counting on us. 

Again, I’d like to thank our witnesses for being with us. I will now recognize my 

distinguished colleague, Representative Andrews, the senior Democratic member of 

the subcommittee, for his opening remarks. 

Mr. ANDREWS. Thank you. Good morning, Mr. Chairman. 

Good morning, colleagues. 

Good morning, members of the panel. Good morning, ladies and 

gentlemen. 

A few minutes ago the news came across that the Dow Jones industrial average passed its highest level in history. 

4 

Chairman, perhaps the hearing is some cause and effect there, 

I am not sure, but what I am sure of is that not all Americans have 

shared in that prosperity. 

Incomes for families have been flat or shrinking. Pensioners are 

at risk. One of the challenges—the context in which we meet this 

morning is to discern a way that we can engender broad-based economic growth in our country so that many benefit from economic 

growth and not just a few. 

One of the ways we need to do that is to bring needed improvements to the multiemployer pension plan system. A few years ago, 

that system was in grave, grave disrepair and trouble largely related to the financial crisis of 2008. There has been improvement 

since then. 

The chairman went through the meaning of the terms green zone 

and yellow zone and red zone. As we meet this morning, we will 

hear information that 774 of the plans are in the so-called green 

zone, which means they are relatively healthy and self-sustaining, 

212 are in the yellow zone, which means they need some help, but 

could go one way or the other, and then 319 are in the red zone, 

which means they are troubled and certainly require the attention 

of the committee. But one of the things I want to emphasize from 

the beginning is that the vast majority of multiemployer pension 

plans are actually quite healthy. 

And the issue this morning is how to create a system where all 

of them become healthy, where pensioners can depend on those 

checks for the rest of their lives, where small businesses cannot be 

strangled by rapidly escalating contributions to those plans and/or 

withdrawal liability, which is a major problem for a lot of small 

businesses, and where we never reach the day, never reach the day 

where taxpayer assistance would even be a relevant issue. 

There is no legal guarantee that taxpayers stand behind the Pension Benefit Guaranty Corporation, but I think recent years have 

shown us that there are moral hazards. There are moral suggestions that a widespread failure of financial institutions tends to 

yield government response. I never want to see the day when that 

becomes a relevant issue here in this space, and I think that we 

can avoid that day where such bailouts would never even have to 

be discussed. 

In my mind, there are four elements to achieving that result. The 

first is the committee does have to look at that premium structure 

of the PBGC, and its ability to raise revenue and reduce the $27 

billion projected deficit that the chairman mentioned. 

Second, we have to look at creative but prudent financing mechanisms where multiemployer pension plans can find a way to amortize their existing obligations over a period of time and minimize 

the short-term impact of those contributions. 

Third, we have to look as the bipartisan group has looked at, 

that the chairman mentioned, at very difficult, often controversial 

changes within plans that make the plans healthier through structural reform. This is a very difficult thing to achieve, and I commended the stakeholders who come together in this process and 

had a very important and I think necessary discussion. 

And then finally, something the chairman has mentioned before 

that I don’t want us to forget. We are all hopeful that good times 

5 

will once again return to our economy and to multiemployer plans. 

Presently, ERISA plans have an artificial ceiling on contributions 

they may receive in those good times, and there were occasions in 

the late 1990s when both multiemployer plans and single-employer 

plans were in a position to make larger cash contributions in given 

years. 

Because of these artificial ceilings, they were not permitted to. I 

think, although it also involves the jurisdiction of the Ways and 

Means Committee, I think one of the issues we need to look at is 

removing those ceilings so that in good times, plans that are wellmanaged can save for the rainy-days event that ultimately come, 

and I think, frankly, that this ability to contribute in good times 

above and beyond the minimum and above and beyond the ceiling 

should extend to all ERISA trusts, including health trusts as well 

as pension trusts, so that an employer or group of employers can 

be even healthier down the line. 

This is a solvable problem. It is a solvable problem, and I commend the chairman for approaching this in a very bipartisan, factdriven method, evidence-driven method. I am confident that this 

morning’s hearings will add to that record and I look forward to 

hearing from the witnesses, and even more importantly, working 

with the witnesses and the stakeholders and my colleagues on the 

subcommittee to fashion a remedy that will make pensioners more 

secure, employers more prosperous, and taxpayers more immune 

from any problems of this problem in the future. Thank you. 

Chairman ROE. I thank the gentleman for yielding, and I have 

never seen a pension plan complain about having too much money. 

I agree with that. 

So pursuant to Committee Rule 7-C, all members will be permitted to submit their written statements to be included in the permanent hearing record and without objection, the hearing record 

will remain open for 14 days to allow such statements and other 

extraneous material referenced during the hearing to be submitted 

for the official hearing record. 

It is now my pleasure to introduce our distinguished panel of witnesses. 

First, the Honorable Joshua Gotbaum is the director of the Pension Benefit Guaranty Corporation, PBGC, where he has served 

since 2010. As director, he is responsible for the agency’s management, personnel, organization, budget, and investments. Welcome 

back, Director. 

Mr. Charles Jeszeck is the director of Education, Workforce, and 

Income Security Issues at the Government Accountability Office in 

Washington, D.C. He has been responsible for numerous GAO reports on government, on the retirement issues including defined 

benefit and defined contribution plans and PBGC. Welcome. 

Mr. Anthony Mark Perrone is International Secretary Treasurer 

of the United Food and Commercial Workers International Union 

here in Washington. His responsibilities include monitoring the finances of the International Union as well as the stewardship of 

several pension plans. 

Mr.—oh, okay. Okay. 

Mr. Force is the president of Force Construction Company in Columbus, Indiana. He will testify on behalf of the Associated GenVerDate Nov 24 2008 10:38 Jan 13, 2014 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 G:\DOCS\113TH\HELP\113-8\79502.TXT DICK
6 

eral Contractors of America and the Indiana Construction Association. Welcome, Mr. Force. 

Before I recognize you to provide your testimony, let me briefly 

explain the lighting system. It is pretty simple. You have 5 minutes 

to present your testimony. When you begin, the light in front of you 

will turn green; 1 minute left, it will turn amber. When your time 

has expired, the light will turn red. At that point, I will ask you 

to wrap up your comments as best you are able. After everyone has 

testified, members will each have 5 minutes and as stated, the 

chair will try to limit himself to 5 minutes. 

Mr. ANDREWS. See, just like the pensions, no one should be in 

the red zone. That is what he means. [Laughter.] 

Chairman ROE [continuing]. Not in the red zone. Including the 

members, I might add. 

Mr. Gotbaum? 

STATEMENT OF HON. JOSHUA GOTBAUM, DIRECTOR, 

PENSION BENEFIT GUARANTY CORP. (PBGC) 

Mr. GOTBAUM. Why do I think that was aimed at me? 

Mr. Chairman, Dr. Roe, Mr. Andrews, members of the committee 

and subcommittee, thanks very much for holding this hearing. 

Since unlike the last time I was before this committee, you now 

have reports, testimony, other knowledgeable witnesses, et cetera, 

I am just going to try to summarize a few of the main points. 

In many respects, multiemployer plans are just like other pension plans. Like other pension plans, they suffered from the 

downturns of the last decade. In the mid-90s, multiemployer plans 

were funded better than 90 percent. After the 2008 crash, the average was under 50 percent. 

Also like other plans, since the crash, they have taken actions to 

restore their finances. Fortunately, and this is something of which 

this committee can be proud, Congress in the Pension Protection 

Act recognized that plans were in differing circumstances, that 

they needed flexibility, and you provided it. 

As a result, as both of you said, most plans report they are recovering and will recover, but a minority are not. These are plans that 

are deeply distressed. They have few active employers left and cannot make up the underfunding for all retirees with the contributions of the few. These plans are asking Congress to provide even 

more flexibility than you did in the Pension Protection Act. 

Importantly, many of their arguments are supported by healthier 

plans. They are supported by healthier plans because they know 

that the failure of one plan could cause employers to panic and 

withdraw from others. 

The healthier plans are also asking for their own forms of flexibility. They want to be able to offer new kinds of plans to attract 

new employers and to keep the ones they have, and they want 

flexibility in withdrawal liability rules that hold the system together. 

As always, primary responsibility for maintaining plans rests 

with the plans, with their trustees, their professionals—both management and labor—their unions, and their businesses, but government can help plans help themselves. 

7 

What can government do? Three things. First, as in 2006, we can 

start with the proposals developed by plans themselves; negotiated 

and thought through with their constituencies. 

Second, again as in 2006, we can recognize that different plans 

have different needs, that they need flexibility to meet their own 

particular challenges. 

Last, but as PBGC director, I hope not least, we can preserve 

ERISA’s safety net—the PBGC. 

As this committee knows, I have enormous respect for the professionalism, the knowledge, and the compassion of the people of the 

PBGC, but that is not enough. PBGC’s multiemployer insurance 

program needs to be rethought. Since it was developed more than 

30 years ago, the world has changed, but our program has not. 

Unlike single-employer plans, PBGC generally cannot act until a 

multiemployer plan has completely run out of money, has become 

insolvent, and even then, we don’t take over the plan, we just pay 

the bills. 

Now plans do come to PBGC before they are insolvent. They propose partitions saying, PBGC: ‘‘We would like you to be responsible 

for orphan participants so that the active employers will stay in 

our plan. Or they propose that PBGC provide financial support for 

a merger so that the trustees of a strong plan are willing to merge 

with the weaker one.’’ 

However, PBGC’s finances generally don’t allow us to provide 

such financial support even when doing so would preserve plans. 

In fact, as both of you have noted, without additional resources, 

PBGC won’t even be able to preserve ERISA’s own safety net. As 

we reported in January, without changes, the multiemployer program itself will likely become insolvent within the next 10 to 15 

years. 

Now, these issues are complicated—pensions always are—but 

they are solvable. In 2006, this committee, working with the plans, 

with professionals, with business, with labor, with the PBGC, and 

with the other ERISA agencies, you tackled them. The next 2 years 

provides the opportunity to do it again. 

As I told the committee in December—when I testified in December—the reports that we finally delivered to you—apologies for the 

delay—provide information, but not recommendations. We think 

the starting point for action, as it was in 2006, ought to be the proposals of the plans themselves. 

Now that they are coming forward, we stand ready to join in the 

effort to analyze, to react, to provide our expertise and judgment, 

and to help preserve multiemployer plans for the millions who depend on them. 

In closing, let me thank you again very much for your leadership. 

I look forward to hearing your views and answering your questions. 

[The statement of Mr. Gotbaum follows:] 

Prepared Statement of Hon. Joshua Gotbaum, Director, 

Pension Benefit Guaranty Corp. 

Thank you for holding this hearing to continue discussions on efforts to strengthen multiemployer plans. 

On January 29, 2013, the three ERISA agencies sent Congress a report required 

by the Pension Protection Act of 2006, P.L. 109-280 (PPA). The report provides information and analysis on the actions taken by multiemployer plans under PPA to 

8 

improve their funded status and the effects of those actions on the plans’ financial 

health. 

Also that day, PBGC sent to Congress two statutory reports on the agency’s multiemployer insurance program, the Five-Year Multiemployer Report on premium levels and the FY 2012 Exposure Report on PBGC’s potential exposure under the single-employer and multiemployer programs. 

We hope these reports will be useful as this Committee evaluates the challenges 

that multiemployer plans face and the various options and proposals to address 

them. 

As expanded upon below, the multiemployer system was designed more than a 

generation ago; the world has changed but the system has not. The challenges facing the multiemployer system are complex and somewhat different from those faced 

by single-employer defined benefit plans. 

As with all pension plans, the last decade has seen many strains on pension funds 

and most multiemployer plans became underfunded. PPA and other legislation enacted since have provided much needed flexibility. Most of those plans have responded, taken advantage of self-help measures, and are on track to recover. This 

is, unfortunately, not true for all plans. Unless significant changes are made allowing them to take additional steps of self-help, a minority of multiemployer plans will 

fail. 

However, there is no silver bullet. Different plans are in different circumstances, 

and they will need a diverse set of tools, options and solutions and the flexibility 

of when and how to apply them. 

The PBGC, designed to be a safety net for failed plans, will also need changes 

if it is to fulfill its mission. Absent reforms, PBGC will continue to lack the tools 

to help plans improve and the resources to continue paying benefits for those that 

do fail. 

With the PPA sunset at the end of 2014, the next two years provide an opportunity for multiemployer plans, their participants, businesses, unions, and professionals to work together with Congress and the Administration to develop approaches that are flexible and practical, and that facilitate self-help. As it did in 

2006, Congress can provide the tools and authorities to help more than a thousand 

plans, hundreds of thousands of small businesses, and millions of American workers 

achieve a more secure retirement. 

Why Multiemployer Plans are Important 

Multiemployer defined benefit plans provide retirement security to more than 10 

million participants and their families. Multiemployer plans help protect participants’ retirement benefits. They provide pension portability, allowing participants to 

accumulate benefits earned for service with different employers throughout their careers. They pool longevity risk, which provides much lower-cost annuities than those 

available in the individual market, and they spread the risk of any individual employer’s failure across many firms. 

Benefits to Employers 

Multiemployer plans have provided retirement annuities to millions of American 

workers for more than half a century. Among the advantages of this type of plan 

is that assets are pooled among employers in a single consolidated trust. Efficiencies 

of scale broaden and diversify investment opportunities and lessen the administrative and investment costs of operating a separate single-employer plan. Investment 

professionals manage the plans’ assets, helping to reduce risks for contributing employers, employees, and retirees. 

Importance to Small Businesses 

Hundreds of thousands of small businesses—doing business in every state—participate in multiemployer plans. Multiemployer plans enable employers to provide 

retirement benefits to their employees without imposing administrative burdens on 

any individual employer. 

Employers generally need only to remit contributions set by collective bargaining 

and are relieved from the responsibilities of operating a plan, which are handled by 

an independent joint board of trustees, consisting of equal representatives of labor 

and management. Consequently, these plans have historically offered employers, especially small businesses, an affordable way to provide pensions to their employees, 

without the administrative burdens. 

No Plan is ‘‘Typical’’ 

There is a wide variety of multiemployer plans, in a wide variety of places, in a 

wide variety of industries, and in a wide variety of conditions. Multiemployer plans 

help small and large businesses and employees in many industries, including conVerDate Nov 24 2008 10:38 Jan 13, 2014 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6621 G:\DOCS\113TH\HELP\113-8\79502.TXT DICK
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1The map below reflects the results of a survey by the National Coordinating Committee for 

Multiemployer Plans (NCCMP) of 70 plans that provided information on the zip codes of companies contributing to their plans in 2011. These 70 plans received contributions from approximately 53,000 companies. 2 Because of maximum deductible limits, some plans increased benefits during this period to 

avoid losing deductible treatment of employer contributions, which also contributed to longerterm costs. These limits were raised in the PPA. 

struction, transportation, retail food, manufacturing and services. Multiemployer 

plans vary in size from small local plans covering a few hundred participants to 

large regional or national plans covering hundreds of thousands of participants. 

There are businesses who contribute to multiemployer plans and multiemployer 

plan participants in every state.1

The Past Decade Has Been Difficult for All Plans 

In recent years, faltering markets and a weak economy exacerbated the effects of 

underfunding. If a plan has a small employer base and large accrued liabilities associated with a mature participant population, it can be difficult to make up funding 

shortfalls. The cost of contribution increases is borne by employers (through reductions to profit margin) and employees (through reductions to current pay or benefits). Finally, a plan’s underfunding increases the contingent liability of contributing 

employers should they withdraw from the plan, which can affect their creditworthiness and discourage new employers from joining the plan. 

The funding levels and demographics of these plans have changed dramatically 

over the years. Before the decade of the 2000s, single-employer and multiemployer 

defined benefit plans enjoyed historically high rates of return, which kept these 

plans well-funded without requiring a large ongoing contribution commitment from 

employers. Moreover, high investment returns financed benefit improvements: plans 

increased benefit accrual rates and granted past service credits; they adopted or 

continued early retirement subsidies, disability pensions, death benefits for nonspouse beneficiaries, and five- and ten-year certain and life guarantees.2 These new 

obligations compounded the plans’ liabilities during the 1990s. 

Like single-employer plans, multiemployer plans suffered significant market 

losses during the 2000s, causing the value of plan assets to plummet. Multiemployer 

plans that had been nearly fully-funded often dropped to less than 50% funded. The 

average funded ratios of these plans (which the agency defines as the market value 

of assets divided by liabilities discounted using a standardized PBGC interest factor) 


79502-7.eps
10 

3Many plans in certain industries, such as manufacturing and retail trade and services, barely exceeded 50%. 4 Endangered status is triggered if a plan has a funded percentage of less than 80% or projects 

a funding deficiency within seven years (if both triggers are met, the plan is in seriously endangered status); the plan’s target is to reduce the underfunding percentage by 33% in a 10-year 

period and to avoid a funding deficiency during the funding improvement period. Critical status 

is triggered if a plan has a funded percentage equal to or less than 65% and projects a funding 

deficiency within five years or insolvency within seven years; or the plan projects insolvency 

within 5 years or a funding deficiency within 4 years; or normal cost and interest on unfunded 

liabilities exceeds contributions for the year, the present value of benefits for inactive participants exceeds that for active participants, and the plan projects a funding deficiency in 5 years. 

The plan’s target is to emerge from critical status using all reasonable measures in a 10-year 

period (if unfeasible, to emerge at a later time or forestall insolvency). 5Generally, reductions of adjustable benefits for active participants arise from collective bargaining. The plan trustees provide to the bargaining parties one or more schedules showing revised benefit and/or contribution structures determined to be reasonably necessary for the plan 

to emerge from critical status. One schedule must be a default schedule, which assumes that 

benefits will be reduced to the maximum extent permitted by law before contribution increases 

are required. Although the default schedule is common in some critical status plans, in other 

critical status plans very few bargaining parties adopt the default schedule, choosing instead 

the preferred schedule which emphasizes contribution increases with limited reductions in benefits. 

exceeded 90% in the 1990s, hovered in the mid-60% range in the mid-2000s, and 

fell below 50% after the 2008 market crisis.3

This unexpected surge in underfunding put huge pressures on funding costs and 

contributions. Tightened PPA funding requirements had also taken effect, requiring 

plans for the first time to publicly certify their funding status. Employers and 

unions—which had come to depend on relatively stable contribution rates—were 

now asked to accept huge contribution rate increases, and plan trustees recommended benefit reductions. 

Employer contributions to multiemployer plans are generally based on number of 

hours worked by actively employed participants. The 2000s decade saw a decline in 

active participants as a percentage of total participants. Thirty years ago, threequarters of all participants were active and only one-quarter were retired or waiting 

to retire. Today, the situation is largely reversed: by 2010, 39% of participants were 

active and 61% were inactive. 

Contributing factors also include the relative decline in unionized employment 

and competitive pressures in some industries from non-unionized businesses, resulting in some employers with multiemployer plans going out of business. Thus, the 

burden of the recent increase in underfunding is borne by a smaller pool of employers and employees supporting the liabilities of much larger inactive populations. 

Plans Have Taken Advantage of PPA Funding Rules and Flexibility 

When Congress enacted PPA in 2006, it anticipated the need for different plans 

with differing situations to address underfunding and other emerging problems in 

differing ways. Under PPA, plans were required (i) to certify their funded status 

each year according to statutory classifications of ‘‘endangered’’ or ‘‘critical’’ status 

(or neither); (ii) to implement funding improvement or rehabilitation plans that include contribution and benefit schedules designed actuarially to improve the plan’s 

funded status; and (iii) to achieve objective funding targets within specified timeframes.4

For the first time, plans in critical status were allowed to reduce certain previously earned benefits (e.g., early retirement benefits, retirement-type subsidies, 

optional forms of payment) that would otherwise be protected from such cutbacks 

by ERISA and the Internal Revenue Code. Participants who started receiving benefits before the plan’s notice of critical status are generally exempted from these ‘‘adjustable benefit’’ reductions.5 Also, for the first time, plans in critical status were 

constrained by law from increasing benefits and from offering lump sum and similar 

benefit payments. 

After the 2008 financial crisis, when plans suffered investment losses of 20 to 

30%, nearly 1,000 plans, or two-thirds of all multiemployer plans, were certified to 

be in endangered or critical status. This loss in plan asset values caused a drop in 

the funded percentage of many plans, and shortened the projected insolvency dates 

of other plans. Possibly the most common trigger for endangered or critical status 

was higher minimum required contributions, which brought plans closer to a projected funding deficiency. 

In December 2008, Congress enacted the Worker, Retiree, and Employer Recovery 

Act of 2008, P.L. 110-458 (WRERA), to give plans respite from the effect of losses 

experienced during the 2008 stock market decline. The majority of multiemployer 

11 

6Multiemployer plans must maintain a funding standard account to measure whether the 

funding requirements are met. If total charges to the funding standard account (normal cost, 

and amortization of net increase in unfunded past service liability, net experience loss or net 

loss from changes in actuarial assumptions) exceed employer contributions and total credits to 

the account (amortization of net decrease in unfunded past service liability, net experience gain 

or net gain from changes in actuarial assumptions), an accumulated funding deficiency results. 

plans elected WRERA funding relief in 2009—freezing their prior year’s funding status and deferring any actions under a funding improvement or rehabilitation plan 

for one year. 

Nevertheless, more than 100 critical status plans in 2009 adhered to PPA strictures and reduced adjustable past benefits; plans reported reducing a total of nearly 

$800 million in liabilities. In addition, almost 200 plans in all status classifications 

in 2009 reduced future benefits, such as future accrual rates (one-half of these plans 

were in critical status). 

Congress then enacted the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, P.L. 111-192 (PRA 2010), to provide further 

funding relief from the significant investment losses that occurred in and around 

2008. Plans extensively relied on PRA 2010 funding relief, which enabled them to 

decrease minimum required contributions, increase credit balances, and improve 

funded certification statuses, alleviating pressures on contribution increases and 

benefit cuts. 

Nevertheless, 149 critical status plans in 2010 applied PPA provisions and reduced adjustable past benefits—including nearly 40% of all critical status plans in 

that year; plans reported reducing more than $2 billion in liabilities. In addition, 

more than 172 plans in all status classifications reported reducing future benefits 

(over 50% of these plans were in critical status). 

Employer contributions have also increased as a consequence of the financial turmoil of the 2000s and PPA’s tightened funding requirements. Contributions climbed 

from $8 billion in 2000 and $16 billion in 2005, to $20 billion in 2009 and $20.5 

billion in 2010. Average annual contributions per active participant rose $700 between 2008 and 2010 from $4,300 to $5,000. 

Endangered status plans had the highest average contributions per active partici- pant ($7,500), while critical status plans had the lowest ($4,000). It is important to 

note, however, that contributions vary significantly from plan to plan, even among 

plans in the same industry (e.g., employers in one critical status plan reported contributions of $17,000 per active participant). 

Plans have also used the flexibility provided under PPA to relieve excessive pressure on employers and unions that could jeopardize their continued participation in 

the plan. For example, PPA eliminated the excise tax assessed on employers by the 

IRS when a critical plan incurs a funding deficiency.6 The intent of the tax was to 

induce employers to contribute the required minimum to the plan. 

The tax has now been replaced by a PPA funding regime that makes similar demands on the bargaining parties. Minimum required contributions spiked after the 

asset losses of 2008, causing 90 plans to report funding deficiencies in 2010—more 

than four times the annual average over the decade prior to 2008. These plans 

avoided an excise tax on funding deficiencies totaling nearly $2 billion in 2010. 

A second example of flexibility granted to plans under PPA is amortization extensions. To ensure pre-funding and require the recognition of costs upfront, PPA shortened the amortization periods for all types of unfunded liabilities to 15 years. However, plans also needed a safety valve in the event of unforeseen costs that the bargaining parties could not immediately afford. PPA permitted a plan that met certain 

solvency requirements to automatically extend amortization periods by five years if 

it projected a funding deficiency in the next nine years. 

This proved to be a popular form of relief: Whereas only six plans were operating 

under amortization extensions for the 2005 plan year—under strict statutory eligibility requirements requiring IRS approval—by 2009 there were 125 plans operating 

under automatic five-year extensions, and by 2010 nearly one-quarter of all critical 

and seriously endangered status plans were operating under amortization extensions (178 plans under automatic extensions and 12 plans under approved extensions). 

Today the Financial Condition of Plans Varies Widely 

Most plans can recover from the market collapses of the past decade on their own 

but, without changes, some severely distressed plans will not. 

Most Plans Are Recovering 

Most plans appear to be recovering from the 2008 financial crisis and subsequent recession. Aggregate assets for all multiemployer plans have increased, from $327 

12 

7PPA defines a plan’s funded percentage for purposes of the additional funding rules as the 

actuarial value of the plan’s assets divided by the plan’s accrued liability. Because each plan 

uses its own methods and assumptions for this purpose, rather than a market value of assets 

or a standardized interest rate for measuring plan liabilities, the funded percentage does not 

necessarily reflect the actual funded status of the plan and two plans with the same market 

value of assets and the same future benefit payments can appear to have different funded percentages (making an accurate comparison difficult). PRA 2010 increased the disparity between 

the actuarial and market value of assets, and lengthened certain amortization periods reducing 

required contributions. 8The agency adjusts plans’ reported vested liabilities using a standardized interest factor that 

along with an assumed mortality table reflects the cost to purchase an annuity at the beginning 

of the year. 9 Using a fixed PBGC interest factor of about 5.30%, liabilities were valued at about $350 billion in 1999 and about $700 billion in 2010. 10PPA required plans to begin reporting orphan participants in their annual report filings; 

plans reported a total of 1.3 million orphan participants in 2010. In 27 endangered or critical 

status plans each reporting 5,000 or more orphan participants, our research showed that orphan 

participants averaged between 31% and 45% of total plan participants. 

billion at the beginning of the 2009 plan year to nearly $400 billion at the end of 

the 2010 plan year (a level last seen in 2006). By 2011, 60% of all plans certified 

they were in non-distressed or ‘‘green’’ zone (i.e., neither endangered nor critical status), an improvement from just 32% in 2009. Endangered status plans fell from 34% 

to 16% of all plans between 2009 and 2011. 

But the financial condition of multiemployer plans today varies widely. Some have 

rebounded following the recovery in asset levels (and with the aid of funding relief). 

Many other plans remain substantially underfunded but are using the tools under 

PPA to gradually adjust income and expenses. As of the 2011 plan year, 40% of all 

multiemployer plans continued to be in endangered or critical status, thus subject 

to additional funding rules under PPA. An initial review of 2012 PPA certifications 

to IRS indicates a slight increase in the numbers of plans in endangered or critical 

status for the 2012 plan year. PBGC estimates that currently just over half of multiemployer participants are in endangered or critical status plans. 

Overall, most multiemployer plans appear sustainable in the long-term, assuming 

they maintain a base of contributing employers able to support the plan’s unfunded 

liabilities and benefit disbursements and avoid significant investment or other actuarial losses. 

Challenges remain, however, in assessing the exact financial condition of many 

plans. Funding relief under PRA 2010 often results in plans overstating their financial health. Nearly 600 plans elected to recognize 2008 investment losses over a period of ten years (rather than the regular smoothing period of five years), but increasing a plan’s actuarial value of assets and funded percentage can cause the plan 

to have a higher PPA funded status than is warranted.7 More than 550 plans elected to use 29-year amortization to pay down 2008 investment losses. These steps reduce a plan’s annual charges and minimum required contribution. This delays the 

date of a projected funding deficiency, which can favorably impact the plan’s status 

under PPA. However, these steps do not reduce a plan’s actual liabilities. 

In addition, aggregate underfunding remains significant, exceeding $350 billion in 

2010 (based on PBGC measurements). Most of the increase in underfunding relates 

to asset declines. In addition, while some part of the increase in underfunding over 

the last decade is attributable to declines in the PBGC interest factor used to measure plan liabilities,8 most of this increase relates to the doubling in liabilities since 

1999 that is independent of the decline in interest rates.9

Minority of Multiemployer Plans are Severely Distressed 

While in the minority, a significant number of multiemployer plans today are severely distressed. These are plans in declining or highly competitive industries, 

often characterized by high rates of employer bankruptcies and high ratios of nonsponsored or ‘‘orphan’’ participants.10

Some large plans have lost thousands of contributing employers over the last two 

to three decades. These plans remain liable for the benefits of participants whose 

employers have withdrawn or gone out of business. In many cases, these orphan 

participants’ benefits were nearly fully funded in 1999 and 2000, but are now substantially underfunded due to market losses. 

These plans generally have many more retirees than active participants—active 

participants may constitute only 10% to 15% of all participants, while 50% or more 

participants may be retirees drawing benefits. In contrast, in 2010, 39% of participants in all plans were active and 33% were retired. Because the distressed plans 

have a weak employer base (that is, few employers in relation to the plan’s total 

13 

11 In this context, exhaustion means the plan cannot pay guaranteed benefit levels for the 

plan year. PBGC also pays financial assistance to ongoing plans (in which contributing employers remain) that exhaust assets. 

unfunded liabilities), it is difficult for them to make up funding shortfalls. For these 

plans, investment losses can be devastating. 

Severely distressed plans also pay out a large portion of their asset base each 

year, which means that they have less time to recover. In some of those situations, 

negative cash flows (benefit payments in excess of contributions and investment income) erode a plan’s asset base year after year. Consequently, many of these plans 

project insolvency over a 10- to 15-year horizon. 

Pinpointing the exact number of severely distressed plans remains elusive, though 

some multiemployer experts estimate they represent roughly 25% of plans in critical 

(or seriously endangered) status—if so, that would be about 80 to 85 plans in 2011. 

We are attempting to identify them, in part, through their self-reporting: PPA rehabilitation plans may reveal to us that, despite exhaustion of all ‘‘reasonable measures,’’ the plan cannot reasonably be expected to emerge from critical status within 

10 years, and is taking all available reasonable measures steps to emerge at a later 

time or to forestall possible insolvency. Plans, however, are not required to make 

such disclosures to the government and some distressed plans are not explicit about 

their circumstances and future prospects. 

What Can Government Do? 

Because multiemployer plans cover many industries and localities, and have been 

affected by different factors, flexibility matters. The challenges faced by these plans 

are often plan-specific issues that the employers and employees in each industry 

and each plan must tackle individually. They will need added flexibility to manage 

their finances and extend their solvency. 

In PPA, Congress gave plans both tools and flexibility for improving their financial health. There were new requirements for fiscal discipline and funding targets, 

but plans were given discretion to develop their own strategies for solving their 

problems. And PPA provided new tools to help plans with rebalancing their costs 

and income and respond to market pressures. 

As in PPA, discussions for further reforms should start with consideration of proposals now being developed jointly by multiemployer plans and their constituencies—including proposals to help distressed plans avoid or forestall insolvency. 

Many of these proposals emphasize additional flexibility in plan design, cost-sharing, as well as funding. The Administration has not taken a position on these proposals; it is too early to do that in advance of the specifics. 

However, as in PPA, government should allow plans the flexibility to solve their 

own problems. 

This is not just an issue for the distressed multiemployer plans. Because many 

plans have common employers—particularly large employers—the failure of one 

plan and resulting imposition of withdrawal liability on its contributing employers 

can have a ripple effect on many other plans. Furthermore, the failure of plans in 

one industry can affect the participation of other employers in other industries. 

Thus a failure in one plan could be devastating for thousands of employers and participants in many plans. 

Last, we can preserve PBGC’s ability to help. PBGC is not just a potential (but 

underfunded) safety net; we also closely monitor plans and their health and can 

offer assistance. A broader range of tools and adequate funding would allow PBGC 

to both help preserve plans and provide the safety net that ERISA intended. 

PBGC’s Multiemployer Insurance Program Needs to be Re-examined 

PBGC’s program and finances also should be re-examined. The multiemployer insurance program that was established under ERISA in 1974 was revamped in 1980. 

However, it has been more than 30 years since the fundamental structure of the 

program has been re-examined. 

Unlike with single-employer plans, in most cases PBGC cannot step in until a 

multiemployer plan has collapsed and run out of money. When all contributing employers withdraw from a plan and the plan’s assets are exhausted,11 PBGC provides 

the plan financial assistance to pay participants a statutorily guaranteed benefit for 

the rest of their retirement lifetimes. (Unlike its insurance of single-employer plans, 

PBGC does not take over the plan, or its assets and liabilities; instead the agency 

funds the plan’s guaranteed benefits and operating costs, and audits to ensure they 

are reasonable.) 

14 

12This includes plans currently receiving financial assistance, terminated plans expected to 

require financial assistance, and ongoing plans expected to require financial assistance in the 

next ten years. 

While the guarantee—up to about $13,000 per year for long-service retirees—often 

does not cover a participant’s full benefits, without PBGC, participants would be left 

with nothing when a plan runs out of money. 

We lend our expertise to multiemployer plans on many issues. Mergers between 

multiemployer plans, for example, can help plans increase their ratio of active to 

inactive participants and save on administrative and investment costs. We also provide flexibility in handling withdrawal liability, where appropriate, to plans that request alternative methods in order to retain and attract new employers. 

However, we do not have the financial resources to help distressed plans directly. 

For example, plans frequently request our financial help to facilitate the merger of 

a weaker plan into a stronger one. While PBGC has been able to assist in a few 

cases—where the weaker plan is near-insolvent and the financial assistance involved is generally small—PBGC has neither the authority nor the money to help 

plans achieve these goals more broadly. Some plans have proposed that they be partitioned so that active employers can support their own employees, rather than the 

employees of companies that withdrew or went out of business long ago. While we 

continue to explore use of this tool (under statutory requirements that are difficult 

to meet), we do not have the resources to assist plans and employers, even in circumstances where a plan could be preserved if released from the unfunded liabilities 

of non-sponsored participants. 

PBGC is continuing to review its existing tools—which are limited—to consider 

whether additional authority could be useful to assist employers and plans in a variety of situations. 

Without Changes, PBGC Faces Its Own Financial Shortfall 

The agency paid $95 million in financial assistance for benefits and plan expenses 

to participants in 49 insolvent multiemployer plans in FY 2012. This allowed these 

plans to continue paying guaranteed benefits to about 51,000 retirees; 21,000 additional participants will receive benefits from those plans when they retire. There are 

61 more plans that have terminated and will run out of money in the next few 

years, and there are some 46 ongoing plans that are projected to become insolvent 

and apply for financial assistance over the next decade. 

As of the end of FY 2012, the multiemployer insurance program had a $5.2 billion 

deficit, with assets of $1.8 billion and booked liabilities of $7.0 billion (relating to 

the plans described above). 

In FY 2012, PBGC collected $92 million in premiums and paid $95 million to support failed multiemployer plans. In that year, Congress raised PBGC premiums, but 

projected benefit payments will increase far more. The number of plans that are 

projected to become insolvent has more than doubled in the last decade. Financial 

assistance payments to these plans are projected to rise rapidly over the next ten 

years—as already terminated plans become insolvent and additional participants retire. PBGC projects that its financial assistance payments to plans booked as liabilities on PBGC’s FY 2012 financial statements12 will exceed $500 million annually 

within a decade, even without adding any new obligations. Although the timing is 

highly uncertain and dependent on many factors not yet known, PBGC projects that 

current premiums ultimately will be inadequate to maintain current guarantee levels and the multiemployer insurance program is likely to become insolvent within 

the next 10-15 years, even before any new obligations are added. 

Future additional obligations are likely. PBGC, in its audited financial statements, estimates that it is reasonably possible that other multiemployer plans will 

require approximately $27 billion in future financial assistance. These ‘‘reasonably 

possible’’ liabilities are not recorded on the corporation’s financial statements because they are not imminent liabilities. 

PBGC has a variety of methodologies for estimating future obligations. The most 

carefully documented is PBGC’s Multiemployer Pension Insurance Modeling System 

(ME-PIMS). Based on those projections, and assuming no changes either in multiemployer plans or in PBGC’s multiemployer insurance program, there is about a 

35% probability that the assets of the insurance program will be exhausted by 2022 

and about a 90% probability of exhaustion by 2032. Like all projections these estimates are dependent on many assumptions about the future and on many factors, 

including investment returns and the actions of trustees, employers, and unions 

dealing with individual plans. 

15 

Premiums and Guarantee Levels Need to be Re-Examined 

Of course, program insolvency can be avoided by changes in premiums and/or in 

guarantee levels. Since multiemployer guarantee levels are below those of singleemployer guarantees, most observers analyze increased premiums, rather than 

changes to guarantee levels. 

Although the timing is uncertain, PBGC projects that current premiums ultimately will be inadequate to maintain current guarantee levels. Multiemployer 

plans currently pay a flat rate premium of $12 per participant per year (until 2006, 

the premium rate was only $2.60 per participant). Thus, the multiemployer insurance fund has accumulated limited reserves. 

Even substantial increases in premiums would amount to a negligible percentage of contributions or costs for most plans. PBGC multiemployer premiums ($93 million 

total in FY 2010) represented about 0.5% of total plan contributions, and about 

0.27% of total plan expenses (benefit payments and administrative expenses). 

Higher premiums, by themselves, are unlikely to put plans or employers out of 

business. However, not all plans and all employers are alike. They are in different 

circumstances. Some are in such dire straits that they often cannot afford any increases in costs, either the small fraction represented by PBGC premiums or other 

administrative expenses, or the much larger portion represented by their benefit 

payments. 

For multiemployer plans, even with the Moving Ahead for Progress in the 21st 

Century Act (MAP-21) increases, absent further changes, PBGC premiums will 

eventually be insufficient to support the guarantee and the multiemployer insurance 

program. Premium reforms are a necessary part of any solution to the funding challenges facing PBGC and should be analyzed as part of and in the context of the 

broader changes for multiemployer plans. 

The Administration is not putting forth any new premium proposal now. As we 

noted in our most recent Five-Year Multiemployer Report to Congress under ERISA 

Section 4022A(f)(1), we can’t yet determine what changes to PBGC premiums for 

multiemployer plans will be appropriate in the future and are not requesting Congressional action now. We think the best course is to raise and discuss the issues 

with the Congress and the affected constituencies and develop an approach that sustains PBGC as part of a broader review of multiemployer plans. 

Next Steps 

We hope the information provided in the multiemployer reports to Congress can 

inform and assist a dialogue about critical multiemployer funding issues and 

PBGC’s program and finances. 

As it did seven years ago in the Pension Protection Act, Congress has an opportunity within the next two years to preserve and enhance the multiemployer plans 

on which so many small businesses and workers depend. 

The next two years will require a thorough review of policy options (including 

those developed by multiemployer plans stakeholders and their constituencies) and, 

ultimately, action on practical steps that will bring long-term stability to the multiemployer system. With changes, multiemployer plans can and will continue to provide portable lifetime retirement benefits for millions. 

PBGC and the other ERISA agencies look forward to working with Congress and 

the multiemployer community as this important dialogue evolves. We are grateful 

for the opportunity this Committee has provided on this important issue and look 

forward to hearing your views and answering any questions you may have. 

Chairman ROE. Thank you, director. 

Mr. Jeszeck? 

STATEMENT OF CHARLES JESZECK, DIRECTOR, EDUCATION, 

WORKFORCE, AND INCOME SECURITY, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. JESZECK. Mr. Chairman and members of the committee, 

thank you for inviting me here today to discuss multiemployer pension plans and the financial challenges they currently face. 

With about 1500 plans covering over 10 million workers and retirees, they are an important component of our nation’s private 

pension system. Today I will focus on the recent actions that the 

weakest multiemployer plans have taken to improve their financial 

16 

position and the current trends in the PBGC multiemployer insurance fund. 

Because this testimony is based on a report to be released later 

this month, the findings presented here should be regarded as preliminary. 

To summarize, while the most distressed plans have taken significant steps to address their funding problems, a substantial 

number here have determined that they have no reasonable options 

to do so and instead will seek to forestall insolvency. 

These existing and anticipated plan insolvencies threaten to 

drive the PBGC’s multiemployer insurance fund into insolvency in 

or about 2023 with serious consequences for the retirees who depend on that fund. 

Under current law, multiemployer plans with inadequate funding 

levels designated as either endangered, yellow zone, or critical, red 

zone must develop and implement plans to improve their financial 

condition. Our analysis of 107 red zone rehabilitation plans found 

that a large majority took substantial corrective action. 

Eighty-one of these plans proposed both increased employer contributions and reduced participant benefits to improve their financial position. An additional 21 plans propose one or the other of 

these actions. Many of these actions were significant, amounting to 

changes of 20 percent or more in the first year alone. 

Many plan officials we spoke with viewed these changes as painful but necessary. They said that in many cases, contribution increases of this magnitude strained the competitiveness of their employers. They also said that eliminating benefits like early retirement subsidies was a very difficult concession for workers, particularly for those in physically demanding occupations. 

These steps, coupled with improvements in financial markets 

since 2008 are expected to make a difference for many plans. We 

found that 79 of the 107 plans surveyed expected to exit red zone 

status after an extended period of time. 

However, 28 plans, despite their best efforts, still projected that 

no realistic strategy of contribution increases and benefit reductions would allow them to avoid insolvency. 

This continued weakness of many plans has important consequences for PBGC’s multiemployer insurance fund. Already, the 

total amount of financial assistance PBGC provides to insolvent 

plans has increased markedly. 

In 2012, PBGC provided $95 million in assistance to 49 insolvent 

plans, up from about $14 million to 29 plans in 2005. PBGC now 

expects plan insolvencies to double by 2017, placing even greater 

demands on the fund. 

In addition, the liabilities to PBGC from these probable insolvencies have increased considerably, reaching $7 billion in 2012. In 

contrast, they funded only $1.8 billion in total assets as of 2012. 

PBGC now expects that future liabilities from probable plan insolvencies will exhaust the multiemployer insurance fund in or 

about 2023. It should be noted that these estimates do not include 

the reasonably possible insolvency of two large underfunded plans. 

Combined, these plans paid about $3.5 billion in benefits to over 

300,000 beneficiaries in 2011. 

17 

Both of these plans are projecting insolvency in the next 10 to 

20 years. Irrespective of the other plan insolvencies expected to 

drain the fund in the next decade, PBGC estimates that the insolvency of either of these plans would exhaust the insurance fund in 

2 to 3 years. 

The exhaustion of PBGC’s multiemployer insurance fund would 

have severe consequences for its beneficiaries. Because there would 

be no assets in the fund, all current and future benefit guarantees 

would have to be financed from premium collections, which totaled 

only $92 million in 2012. 

Beneficiaries of the multiemployer insurance fund who are already receiving reduced benefits at or below the comparatively 

modest maximum fund guarantee of $13,000 per year would see 

their benefits further reduced to a small fraction of that total. 

Our forthcoming report will explore these issues in greater detail 

and identify actions that can address the potential loss of retirement income facing workers and retirees in some of our nation’s 

most vital industries. 

That concludes my statement, Mr. Chairman. I will be happy to 

answer any questions you or the members may have. 

[The statement of Mr. Jeszeck may be accessed at the following 

Internet address:] 

http://www.gao.gov/assets/660/652687.pdf 

Chairman ROE. Thank you, Mr. Jeszeck. 

Mr. Perrone? 

STATEMENT OF ANTHONY M. PERRONE, INTERNATIONAL SECRETARY–TREASURER, UNITED FOOD AND COMMERCIAL 

WORKERS INTERNATIONAL UNION 

Mr. PERRONE. On behalf of the 1.3 million members of the 

United Food and Commercial Workers International Union, I am 

pleased to submit this testimony to the Education and 

WorkforceWorkforce Pension Subcommittee. 

Since 2004, I have served as International Secretary-Treasurer of 

the UFCW and our union represents members in U.S. and in Canada predominantly in retail food and food manufacturing. 

Through collective bargaining, the UFCW has over 60 multiemployer pension plans across America that we support along with 

large major supermarket corporations like Kroger, Safeway, 

Supervalu, Ahold USA. 

These plans cover approximately 700,000 active workers and an 

additional 700,000 retirees and terminated vested workers with a 

right to a pension in the future, also part-time workers as well. 

As a part of my responsibilities, I serve as Chairman of the largest UFCW pension fund, the UFCW Industry Fund, an industry 

fund that represents about $5.2 billion worth of assets that covers 

92,000 active workers that are employed by 500 different employers. 

In 2012, the Industry Fund paid out $268 million in benefits to 

62,000 retirees. Of that, which was full-time and part-time, for an 

average benefit of around $500 a month. In the past decade, the 

18 

financial crises that we have experienced have destabilized many 

of our funds. 

Starting with the tech bubble in 2000 through 2002, followed by 

the global financial crisis that took place in 2008, our plans have 

suffered two draw-downs that reduced funding ratios and in some 

cases, threatened plan solvency. 

Since 2008, trustees have continued with highly volatile public 

markets, historically low interest rates, and the Federal Reserve 

Bank’s quantitative easing strategies have been difficult if not unfriendly to pension plans. 

Pension funding ratios today are more sensitive to investment 

risk because plans have matured. Inactive benefit liabilities are 

more than two times active liability and these plans are now paying more in benefits than they are receiving in contributions, resulting in negative cash flows. 

Now the UFCW has supported and lobbied for the passage of the 

PPA in 2006, and a number of our plans proactively implemented 

funding improvement plans even before then. We implemented prospective benefit reductions, contribution increases even prior to 

2008. 

Many plans actively have reduced our investment risk in our 

portfolios by further diversification of assets away from the public 

markets, but the magnitude of the events that took place in 2008 

were overwhelming. 

Multiemployer plans lost between 20 and 30 percent of their assets in 2008 and that was when the PPA really came into effect. 

The same year that the global financial crisis hit the U.S. economy 

with the force of a category five hurricane, at that same time, PPA 

dramatically recast the funding requirements established by 

ERISA in 1974. 

Labor and employer trustees on UFCW plans have worked with 

their legal and their actuaries to comply with the PPA, and we 

spread the pain in forms of either higher contributions or lower 

benefits to our participants. 

However, despite these efforts, the UFCW has at least five plans 

that are deeply troubled and threatened by insolvency. We believe 

that the additional tools that are for deeply troubled plans that are 

recommended by the NCCMP Retirement Security Review Commission would go a long way to help us with those plans’ survival. 

In fact, the Joint Labor Management Committee of the Retail 

Food Industry, which includes the UFCW, Kroger, Safeway, 

Supervalu, and Ahold USA, just last week endorsed that plan and 

that commission’s report. 

The UFCW has been proactive in our defense of our pension 

plans and many of our plans remain green under the PPA through 

managed discipline, funding policies, and taking active measures to 

de-risk our investment programs. 

However, the global financial crisis destroyed trillions of dollars 

of retirement wealth. Boston College Center for Retirement Research Retirement Risk Index suggests that over 50 percent of 

Americans today cannot support a decent standard of living when 

they retire. 

I urge the committee to support our efforts and take all actions 

necessary to preserve and secure multiemployer pension plans, 

19 

which play a critical role in delivering retirement income to so 

many Americans. 

The NCCMP Retirement Security Review Commission Report is 

a roadmap to help achieve those goals. 

Thank you, Mr. Chairman. 

[The statement of Mr. Perrone follows:] 

Prepared Statement of Anthony M. Perrone, Secretary-Treasurer, 

the United Food and Commercial Workers International Union 

On behalf of the 1.3 million members of the United Food and Commercial Workers International Union, I’m pleased to submit this testimony to the Education and 

Workforce Pension Subcommittee. This hearing is both timely and critical to the 10 

million workers and retirees who are accruing and receiving benefits from the multiemployer pension system. 

Since 2003, I’ve served as the International Secretary-Treasurer of the UFCW 

International Union. The UFCW represents members in the U.S. and Canada predominantly in the retail food and food manufacturing industries. Through collective 

bargaining, the UFCW sponsors over 60 multiemployer pension plans across America along with large supermarket chains like Kroger, Safeway, Supervalu, and 

Ahold USA. These plans cover approximately 700,000 active workers and an additional 700,000 retirees and terminated workers with a right to a vested pension in 

the future. UFCW multiemployer plans are especially unique in providing pension 

coverage to part-time workers. 

As part of my responsibilities, I serve as the Chairman of the UFCW’s largest 

multiemployer pension plan, the UFCW Industry Pension Fund. The Industry Pension Fund is a $5.2 billion plan that covers 92,000 active workers employed by 500 

different employers. In 2012, the Industry Pension Fund paid $268 million in benefits to 62,000 retirees. All of our multiemployer plans are defined benefit plans that 

pay lifetime benefit annuities. The benefits are modest, averaging just over $500 per 

month. 

Multiemployer Plans are governed by the funding and fiduciary rules established 

by ERISA. The Taft-Hartley Act requires that the Board of Trustees of these plans 

consist of an equal number of labor and management trustees. Neither labor nor 

management dominates the governance of these Plans. Labor and Employers act as 

co-partners in the management of these plans as it relates to administration, funding policy, and investment policy. 

The past decade of financial crises has destabilized many of our multiemployer 

plans. Starting with the Tech Bubble in 2000-2002, followed by the Global Financial 

Crisis in 2008, our plans have suffered two major drawdowns that reduced funding 

ratios and in some cases threatened plan solvency. The experience of the capital 

markets in the past decade has been unprecedented and presents one of the most 

adverse environments for institutional investors in the post-World War II era. Since 

2008 pension trustees have had to contend with highly volatile financial markets 

alongside historically low interest rates. The Federal Reserve Bank’s quantitative 

easing strategies are unfriendly to pension plans. 

Pension plan funding ratios today are more sensitive to investment risk because 

the plans have matured—inactive benefit liabilities are more than two times active 

liability, the workforce has aged, and the plans are now paying more in benefits 

than receiving in contributions resulting in negative cash flow. As a result, investment returns are critical. When returns fall below expected assumptions, the impact 

on the funding ratio is dramatic. Because of the PPA’s annual certification process, 

a significant number of plans are one bad investment year away from triggering red 

zone critical status. 

The UFCW supported and lobbied for the passage of the Pension Protection Act 

of 2006 (PPA). The UFCW and the Employers we bargain with adopted many of the 

principles of PPA well before it was legislated. A number of UFCW plans proactively 

implemented funding improvement plans that implemented prospective benefit reductions and contribution increases prior to 2008. Many plans actively reduced investment risk in their portfolios through further diversification of assets away from 

public equities. But the magnitude of events in the financial markets in 2008-2009 

was over-whelming. Multiemployer Plans lost between 20-30 percent of their assets 

in 2008-2009. Added to these losses were the expected returns of 7-8 percent that 

were not realized. Five years later, plan assets have barely recovered to 2007 levels. 

PPA became effective in 2008, the same year that the Global Financial Crisis hit 

the U.S. economy with the force of a category 5 hurricane. Congress could have 

never anticipated 2008 and the devastation it would incur on pension plans. At the 

20 

same time, PPA dramatically recast the funding rules first established by ERISA 

in 1974. Plan trustees were required to interpret and comply with PPA in the midst 

of a funding crisis that they were not responsible for. The regulatory agencies responsible for PPA continue to offer very little guidance. For reasons unknown to me, 

Congress decided not to address PPA complexity in technical corrections legislation. 

This is one of the reasons why the UFCW endorses the NCCMP Retirement Security Review Commission proposals. 

In our experience, Labor and Employer trustees on UFCW plans have worked 

tirelessly with their legal and actuarial advisors to comply with PPA. Our red and 

yellow zone plans have adopted rehabilitation and funding improvement plans that 

allow these plans to emerge as safe green zone plans in 10-13 years as required by 

law. These efforts have spread equal pain in the form of higher contribution for employers and reduced benefits for participants. The UFCW has at least five plans 

that are deeply troubled and threatened by insolvency and must utilize the ‘‘reasonable measures’’ safe harbor provisions of PPA. We believe that the additional tools 

for deeply troubled plans recommended by the NCCMP Retirement Security Review 

Commission would help these plans survive. In fact, the Joint Labor Management 

Committee for the Retail Food Industry which includes the UFCW, Kroger, 

Safeway, Supervalu, and Ahold USA endorsed the Commission Report. 

The UFCW has been proactive in defense of its pension plans. The Industry Pension Fund that I chair has successfully remained fully funded and a safe green zone 

plan under PPA through managing a disciplined funding policy and taking active 

measures to de-risk its investment program. This was accomplished through a partnership between the Union trustees, the Employer trustees and the respective bargaining party stakeholders. Every two years the trustees reset the actuarial cost of 

the benefits. The bargaining parties must adjust to this cost reset or future benefits 

will be decreased. In addition, the trustees reduced early retirement subsidies and 

require 10% of every contribution dollar to be held in reserve to amortize any unfunded liability. The plan’s investment committee has taken a number of sophisticated steps to control investment risk. As a result, the Industry Pension Fund’s 

losses in 2008 were half of the average losses suffered by multiemployer plans. 

In 2011, the UFCW and Kroger completed a novel pension transaction that 

merged four red zone plans to create one fully funded green zone plan. The new 

plan covers 180,000 participants. The 10 year agreement that created this new fund 

set out an explicit arrangement to fully fund the new plan and establish a new future service defined benefit plan. In its first year of operation in 2012, Kroger contributed $1.0 billion into this plan bringing its funding ratio from 71% to 100%. 

Kroger utilized today’s low interest rates to borrow the necessary contributions in 

the public debt markets to pre-fund this plan. This partnership between the UFCW 

and Kroger sets an example for others to ensure the pension security for their workers and retirees. Not all companies have the credit worthiness of Kroger and its access to the public debt markets. The U.S. Government could greatly enhance retirement security by offering to guarantee corporate bonds or loans dedicated to prefund pension plans. 

The recent reports issued by the Pension Benefit Guaranty Corporation (PBGC) 

paint a grim picture of the multiemployer pension system. The global financial crisis 

destroyed trillions of dollars of retirement wealth. The Boston College Center for Retirement Research ‘‘Retirement Risk Index’’ suggests that over 50% of Americans 

cannot support a decent standard of living when they retire. We cannot afford to 

allow existing pension plans to wither and die. Millions of American workers and 

retirees and their families depend on multiemployer pension plans. Pension leaders 

in the retail food industry have been proactive and creative and through self-help 

have protected the retirement security of hundreds of thousands of plan participants. I urge the committee to support our efforts and take all actions necessary 

to preserve and secure multiemployer pension plans which play a critical role in delivering retirement income to so many Americans. The NCCMP Retirement Security 

Review Commission Report is a roadmap to achieving that goal. 

Chairman ROE. Thank you, Mr. Perrone. 

Mr. Force? 

21 

STATEMENT OF HAROLD FORCE, PRESIDENT, FORCE CONSTRUCTION CO., INC., TESTIFYING ON BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA AND THE 

INDIANA CONSTRUCTION ASSOCIATION 

Mr. FORCE. Thank you, Chairman Roe, Ranking Member Andrews, and members of the subcommittee for the opportunity to 

testify at this hearing. 

My name is Harold Force, President of Force Construction Company, Incorporated, founded in 1946 and headquartered in Columbus, Indiana. My presence here today is in behalf of the Associated 

General Contractors of America affiliated Indiana Construction Association, and my company. 

My company performs institutional, commercial, and industrial 

building construction as well as the construction of bridges, dams, 

and civil works. Our workforce includes 170 persons, the majority 

of them members of one of four construction craft unions. 

As an employer signatory to multiple craft agreements, we find 

that the multiemployer pension plans are quite different from single-employer and public employee defined benefit plans. 

Previous legislation has failed to give trustees, contractors, and 

union representatives the tools needed to deal with the challenges 

of managing their plans. 

There are nearly 3.9 million participants in construction industry 

multiemployer plans. Our experience is that the plans allow construction employers to adapt to a fluctuating workforce and allow 

employers to share a pool of qualified employees who may work for 

multiple employers and at multiple sites over time, while giving 

them access to retirement security without being tied to a particular employer. 

Although they are currently considered as defined benefit plans, 

this has not always been the case. The concept of signing on for 

anything other than the hourly contribution was not even a part 

of the discussion until the early 1980s. For most contractors, it is 

only recently that they have come to understand that such plans 

are defined benefit plans and not defined contribution plans. 

Together with the realization that the hourly contributions being 

made may not cover the benefit liability accruing within the plans, 

the issue of pension plan insolvency poses a dire threat to companies large and small. 

As recently as 2000, all of the plans to which our firm is signatory were fully funded. Due to plan consolidations, the number of 

plans to which our firm contributes has reduced from approximately 25 to a total of six for the same geographic area and for the 

same number of crafts. 

All of these plans are in the red zone, meaning that they are 

critically underfunded on a current basis. I believe that the assessments and recommendations outlined in the report of the National 

Coordinating Committee for Multiemployer Plans are well-developed and necessary to consider. 

Changes are needed to save the businesses of many contributing 

employers and to protect the retirement security of their hardworking employees. Contributions to these plans are funded entirely by employers, not unions, and pension plan relief need not 

22 

be a union bailout. Without implementing the recommendations, 

the failure of these plans may jeopardize solvency of the PBGC. 

In summary, number one, I am concerned that the status of 

many plans will rapidly pass a tipping point where the issues of 

the deficit plan, increasing retirements, reduced numbers of new 

employees under the plan, and withdrawal of contractors will occur 

on a coincident manner that will accelerate the failure of many 

plans. 

Such convergence of factors could precipitate failure of the plans 

and financial failure of the contributing employers. This prospect 

is made worse because of delays in plan reporting. 

Secondly, available data on the status of plans to which our firm 

is signatory suggest the plans cannot be funded to a healthy status—cannot be restored to a healthy status by addressing only the 

funding side of the situation. We have tried that. I would refer you 

to the table and graph attached to the written testimony. 

Thirdly, a central underlying assumption concerning funding for 

construction plans, a relatively steady flow of contractors, and employee beneficiaries is not taking place. Prospective employees consider the high contribution rates combined with minimal benefits 

accrual and conclude that the plan provides a low benefit return 

for them. 

Prospective employers may choose to stay out of such plans to 

avoid the rapid accrual of an undefinable withdrawal liability. Signatory contractors consider winding down and closing their business rather than risk exposure to the continuing growth of an unfunded liability. And employee beneficiaries who are fully vested 

are taking early retirement in record numbers out of fear that the 

plans may fail before their normal retirement age and that benefits 

will be lost. 

Number four, continuing efforts by the Treasury and Federal Reserve to maintain low interest rates makes it more difficult for 

fund earnings to reach the investment earning assumptions which 

drive the calculation for retiree benefits. 

And lastly, prospective signatory contractors may decide not to 

sign union craft agreements with the result that their employees 

may be denied access to skills training, apprenticeship, and portability of benefits, all of which are necessary to attract and retain 

a competent pool of employees for our industry. 

Thank you, and I would be pleased to answer any questions. 

[The statement of Mr. Force follows:] 

Prepared Statement of Harold F. Force, PE, President, 

Force Construction Company, Inc. 

Thank you, Chairman Roe, Ranking Member Andrews, and members of the Subcommittee, for the opportunity to testify at this hearing on the ‘‘Challenges Facing 

Multiemployer Pension Plans: Reviewing the Latest Findings by PBGC and GAO.’’ 

My Name is Harold Force and I am the President of Force Construction Company, 

Inc., founded in 1946 and headquartered in my hometown of Columbus, Indiana. My 

presence here today is in behalf of The Associated General Contractors of America; 

affiliated Indiana Construction Association; and my company. My company performs 

institutional, commercial, and industrial building construction, as well as the construction of bridges, dams, and civil construction. Our activities are fairly evenly divided between private and public work sectors, the latter of which may include elements of local, state, and federal funding. 

Although we have completed jobs in seven different states over the last five years, 

the majority of our work is performed within the State of Indiana. Depending upon 

23 

the type, size, and location of our projects, our direct employed manual workforce 

includes from 125 to 250 persons, nearly all of them members of one of four construction craft unions. Our salaried non-union technical, administrative, and supervisory personnel number approximately 35 persons. 

I. Multiemployer Pension Plans and the Construction Industry 

A. Background 

Multiemployer plans were initiated in the early 1900s but remained unregulated 

until 1947 when the Labor-Management Relations Act (informally known as the 

Taft-Hartley Act) was enacted imposing a number of procedural and substantive 

standards that unions and employers must meet before they may use employer 

funds to provide pensions and other employee benefits. The Employee Retirement 

Income Security Act (ERISA) in 1974, the Multiemployer Pension Plan Amendments 

(MPPA) in 1980, the Economic Growth and Tax Relief Recovery Act in 2001, the 

Pension Protection Act (PPA) in 2006 and subsequent relief legislation all provide 

for distinct and strict funding rules for multiemployer pension plans in recognition 

of the vastly different nature of multiemployer plans from single employer and public employee defined benefit plans. However, previous legislation has failed to give 

plan trustees, signatory contractors, and union business representatives all the tools 

they need to deal with the challenges of managing multiemployer defined benefit 

plans. 

Employers contributing to multiemployer plans are not allowed, under any circumstances, to legally defer payments to their respective pension trust funds, and 

many of the funding issues for Multiemployer Pension Plans (MEPPs) are entirely 

out of the hands of individual contributing employers. They are obligated by their 

labor contracts to contribute a certain amount for each hour of work by a covered 

employee. If an employer is delinquent in its contributions, the MEPP trustees have 

a legal, fiduciary responsibility to take all reasonable steps to collect the delinquent 

amount. Each MEPP is governed by a board of trustees, with equal representation 

from management and labor, as required by the Taft-Hartley Act. Trustees are fiduciaries required by law to act in the best interests of the MEPP. They make plan 

decisions based on sophisticated modeling and advice by plan administrators, actuaries and investment advisors. 

It is important to keep in mind that contractors signatory to collective bargaining 

agreements requiring contributions to multiemployer pension plans are firmly and 

legally bound to make the pension contributions called for by their agreements, and 

cannot elect to delay or modify such payments or use them for any other purpose 

while obligated to the collective bargaining agreement. 

B. Construction Industry 

There are nearly 3.9 million participants in construction-industry multiemployer 

plans, and most contributing employers to these plans are small businesses. The 

construction industry is comprised of mostly small employers. MEPPs offer these 

employers the ability to compete with larger employers and to offer attractive benefits to maintain and preserve a skilled workforce. MEPPs are also attractive to construction employers because of the unique nature of the industry; MEPPs allow construction employers to adapt to a fluctuating workforce from project to project, and 

facilitate the construction employers’ ability to share a pool of qualified employees 

because the MEPPs offer employees that may work for multiple employers in a region over the course of their working lifetime, and often multiple employers in the 

same year, the portability to have retirement security without being tied to a particular employer. 

Although MEPPs are currently considered as defined benefit plans, this may not 

have been the case when many of the current plans were first established. As far 

back as the mid-1950s, payments to the plans were negotiated on a per-hour basis 

as part of a larger wage and benefits package. The concept of ‘‘signing on’’ for anything other than the hourly contribution was not even a part of the discussion or 

the negotiation for such plans until the passage of ERISA in the early 1980s. For 

most contractor members of MEPPs, it is only in the recent past they have come 

to understand such plans as defined benefit plans, along with the realization that 

the hourly contributions being made may not cover the liability accruing within the 

plans and for the benefit of their employees and future (or current) retirees. 

The construction industry is populated by firms of many different sizes, with the 

number of employees who are beneficiaries of the MEPPs varying from a handful 

to groups numbering in the thousands. The very real and growing issue of pension 

plan insolvency affects companies large and small. 

Construction-industry employers are often represented by a local employers’ association that negotiates a multiemployer collective bargaining agreement (CBA) with 

24 

1 Inventory of Construction Industry Pension Plans, 2012 Edition http:// 

www.horizonactuarial.com/blog/uploads/2012/08/MCAA—Horizon—2012PensionInventory— 

web.pdf 

one or more unions on behalf of its member-employers or other employers that have 

delegated bargaining rights. For example, Force Construction is a member of Indiana Contractor Association (ICA), a chapter of The Associated General Contractors 

of America. ICA negotiates multiemployer CBAs with the Carpenters, Cement Masons, Ironworkers, Laborers, Operating Engineers, and Teamsters on behalf of many 

ICA member companies. While Force has not assigned its bargaining rights to the 

ICA, and has negotiated directly with some of the craft unions, the benefit provisions are always the same as in the ICA agreements. These CBAs obligate us to 

contribute to local and/or regional MEPPs. In addition, they obligate us to contribute to other funds, such as multiemployer health and welfare funds, training 

and apprenticeship funds, and, in some cases, multiemployer defined contribution 

pension plans. Construction-industry MEPPs often have hundreds or thousands of 

participating employers. 

While 54% of all MEPPs are in the construction industry and 37% of participants 

are in a construction industry plan. Construction industry plans vary by asset value, 

number of participants, number of employers, types of participants and funding status. 

Seven months after the close of its plan year (ten and a half months, with extension), every qualified pension plan must file a Form 5500 with the Internal Revenue 

Service (IRS) and the Department of Labor (DOL). According to a report by the Mechanical Contractors Association of America and Horizon Actuarial Services, LLC, 

Inventory of Construction Industry Pension Plans, 2012 Edition, that analyzed the 

most recent Form 5500 filings——there were 819 construction-industry multiemployer defined benefit plans in the country, and approximately 20 MEPPs applicable 

to construction industry employers in the State of Indiana. 

The report shows MEPPs vary by asset value with a median asset value of $56 

million. Nine percent of the plans had assets above $500 million, 26% between $100 

and $500 million and 67% less than $100 million. 

MEPPs vary by number of participants with the median number of plan participants being 1,183 (participants include inactive participants with deferred vested 

benefits, retired participants, and beneficiaries). About 8% of the plans had at least 

10,000 participants. About 46% of the plans had fewer than 1,000 participants and 

24% had fewer than 500 participants. 

MEPPs vary by the number of employers with the median number of participating 

employers being 64. About 19% of the plans had fewer than 25 employers and 61% 

had fewer than 100 employers and 78% had fewer than 200 employers. About 4% 

of the plans had more than 1,000 employers. 

MEPPs vary by the types of participants with the median number of participants 

with deferred vested benefits increasing from 984 in 2001 to 1,152 in 2010 with 

most of the increase coming from inactive participants. Overall, plan populations 

are growing larger with the number of active participants declining while the number of inactive participants getting larger. Five percent of plans had at least 4 inactive participants for every 1 actively working participants—very unhealthy—while 

5% of plans had almost 2 active participants for every 1 inactive participant. The 

median construction industry plan had 4 inactive participants to every 3 active participants. 

Finally, MEPPs vary by funding status with median industry plan at 80% funded 

in 2010. Half of plans were within 71% and 88% funded, 5% were 107% funded or 

better and 5% of plans were 50% funded or worse. Using the PPA certification status: 57% were ‘‘Green Zone’’, 19% were Endangered, 4% were Seriously Endangered 

and 20% were Critical.1

II. How did Construction Get to this Place 

A. Pension Funding Rules 

Employers contributing to MEPPs are often asked how did the plans get into this 

situation. The stock market made a lot of money for quite a few years. Why didn’t 

plans bank returns in the big years to save for the day when stock market returns 

were down? They were constrained by federal tax policy. 

Importantly, sponsors of single-employer plans could respond to overfunding by 

simply suspending their contributions to plans. Unfortunately, employers contributing to MEPPs were legally bound by their collective bargaining agreements to continue to contribute to MEPPs that became overfunded. Yet, when those contributions exceeded the ‘‘maximum deductible’’ limit permitted by tax laws, the contribVerDate Nov 24 2008 10:38 Jan 13, 2014 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 G:\DOCS\113TH\HELP\113-8\79502.TXT DICK
25 

uting employers ran the risk of losing their current deduction for the contributions 

and of being assessed an excise tax on top of the contributions. 

MEPP trustees, in actions that seemed to make sense at the time, responded to 

such potential overfunding by making additional benefit improvements. Stopping 

contributions entirely would have been much more complicated because of the collective bargaining process that would have required renegotiation of collective bargaining agreements to accomplish it. And, after all, the MEPPs had not had significant funding issues in the past 

Tax law that imposed the maximum deductible limits focused on small professional companies that might be inclined to shelter income. It was not designed for 

construction employers who were bound by their collective bargaining agreements 

to make the contributions and who could in no way shelter income in the multiemployer plan to which they were contributing. 

The funding provisions of the PPA expire on December 31, 2014. The PPA helped 

MEPPs in some respects, but it has also proven to be inflexible and insufficient to 

meet today’s demands. 

On the positive side, the PPA requires timely and extensive reporting so all employers know the status of funds and their obligation—which, regrettably, was often 

not the case before the PPA. The PPA has also allowed a MEPP needing corrective 

action to take 10 or 15 years to bring it to a better funded position; before the PPA, 

employers could have been required to make up deficiencies in one year andface IRS 

levies. The PPA has also permitted some reduction in accrued benefits by plans in 

the worst shape. 

B. Financial Crisis 

The 2008 economic downturn highlighted the inherent risks that the current system poses for contributing employers and the unpredictable costs and risks for employers. The reduction in construction activity meant since then has meant fewer 

hours are being worked, reducing directly that amount of money being contributed 

to MEPPs. At the same time, the loss of value in invested assets that occurred when 

the stock markets plummeted reduced the funding position of the MEPPs as well. 

The median construction-industry MEPP was 80% funded at the end of 2010. Even 

under the best of circumstances it would take 10 years or more for plans to recover 

from the 25%-plus market losses in 2008. 

The PPA continued to be inflexible while the events that resulted in that underfunding played out. The PPA did not take into account the market cycle or the equity market downturn, which the second historic equity market plunge and industry 

downturn exposed. 

C. Industry Demographics 

Plans are facing a shrinking ratio of workers to retirees. Pension plan demographics have steadily worsened over the past decade, with sharp declines after 

2008. Inactive participants (i.e., retirees in payout status) now outnumber active 

participants, and that trend is accelerating. It has become more difficult to improve 

plans’ funding status merely by increasing the employers’ contribution rate or decreasing the participants’ future benefit accruals. In 2010, the ratio was four inactive workers for every three active workers in construction-industry MEPPs, and the 

number of retired participants drawing benefits is growing. 

D. Industry Downturn 

As referenced earlier, construction-industry MEPPs are dependent on hour-based 

contributions for active workers and on attracting new employers into the system; 

however, both of those factors are shrinking. The unprecedented downturn in construction demand in recent years has left the hours of work significantly down and 

fewer active participants performing work. Some construction-industry MEPPs are 

being funded based on 40% fewer hours of work now. The industry has two million 

fewer workers today compared with the start of the recession and continues to have 

the highest industry unemployment rate of any industry. 

III. Force Construction Company Multiemployer Pension Plan Contributions 

For the State of Indiana, Force has records going back as far as 1984, at which 

time all plans were fully funded and with many plans have funding ratios of 110% 

to 115% or more. As recently as 2000, all of the plans to which our firm is signatory 

were fully funded, meaning that there was no allocable unfunded vested liability or 

withdrawal liability. Because of MEPP plan consolidation, the number of individual 

plans to which our firm contributes has drastically reduced, from approximately 25 

plans 30 years ago; to approximately 15 plans 15 years ago; to a total of 6 plans 

today (for the same geographic area and for the same number of crafts). Those 6 

26 

plans are all currently underfunded and in the PPA’s red zone, meaning that these 

plans are critically underfunded on a current basis. 

Attached to this report is the most currently available information on plan status 

for general construction trades in the State of Indiana. 

IV. Impact on Construction Employers 

Unfortunately, employers can be adversely affected by participating in a multiemployer plan. When an employer participates in a MEPP it expects that its contributions will fluctuate depending on the employer’s business conditions—and, particularly, that contributions based on hours worked will decline as hours of work decline. But when a plan experiences funding difficulties, contributions may still need 

to rise—even though, and actually because, hours on which contributions are made 

have dropped. In this respect, an employer participating in a MEPP is subject to 

many of the same vagaries of the economy as a single employer with a defined benefit plan. Small employers are often less able to absorb fluctuating contribution rate 

increases than a large employer. When companies bid for work, accounting for this 

can often inflate a given company’s bid costs, which, in turn makes that company 

less competitive in a highly competitive market. Reduced work activity thus reduces 

funding, but the overall funded status problem of MEPPs is exacerbated by the fact 

that many participants are now ‘‘orphans.’’ That is, the employers for whom they 

worked are now out of business or out of the MEPP, but the benefits accrued while 

the participants worked for those employers were not fully funded by the former employers’ contributions. Employers are often astounded, and their plans often thwarted, by extraordinary withdrawal liability created by such funding shortfalls when 

they are ready to sell their business or change their operations. The prospect of 

withdrawal liability can discourage a potential buyer from acquiring a business 

when its current owners want to sell and retire. 

The higher pension contributions needed to work on eliminating the underfunding 

are detrimental to the contributing employers in their already competitive environment for signatory contractors, but they can hurt employees too. Often in the construction industry, collective bargaining parties negotiate over a wage-and-benefits 

package. In order to alleviate pension underfunding, a greater portion of that package must be allocated to pension plan contributions because it cannot be passed 

along as a cost to the construction user. This leaves less money available for wage 

increases and other benefits. In short, the total amount of money available for 

wages and benefits is finite, so one consequence of underfunded pension plans is 

that employee take-home pay remains stagnant or, worse, is reduced. 

V. Recommendations for Congress 

Trustees of a plan must be given the flexibility to make changes. New tools are 

needed to try to revolutionize the pension system and save the defined benefit system—both for the directly interested parties such as employers and participants, but 

also for the PBGC. 

The PPA’s current funding rules for multiemployer pension plans sunset in 2014 

which will create additional challenges for distressed plans. A plan that is currently 

in the green zone but might face funding problems after December 31, 2014, would 

not be able to use the current PPA rules to improve its position. After December 

31, 2014, a plan that is in red status will continue to be in that status, a plan that 

is in yellow or orange status will continue to remain in that status, but a plan that 

is in green status will not be able to go into red, orange or yellow status and take 

advantages of the tools that such status now permits. 

The Retirement Security Review Commission (the Commission) was a labor-management, cross-industry group of stakeholders established by the National Coordinating Committee of Multiemployer Plans to develop a long-term solution to the 

multiemployer pension problems discussed above. The Commission has developed 

recommendations for legislative changes that Force Construction and the Associated 

General Contractors of America support. These changes are needed to give plan 

trustees and collective bargaining parties more tools to take prompt action to correct 

funding shortfalls and avoid future shortfalls, to distribute costs and risks more equitably among all stakeholders in the plan, and to secure the retirement income of 

employee participants in multiemployer plans. 

A. Preservation: Proposals to Strengthen the Current System 

Some of the Commission’s proposals represent technical refinements to the PPA, 

while others address shortcomings of the system outside of the PPA. These recommendations are designed to provide additional security for (a) the majority of 

plans that have successfully weathered the recent economic crises; (b) those that are 

on the path to recovery as measured against the objectives set forth in their funding 

improvement and/or rehabilitation plans; and (c) those that, with expanded access 

27 

to tools provided in the PPA and subsequent relief legislation, will be able to achieve 

their statutorily mandated funding goals. 

B. Remediation: Measures to Assist Deeply Troubled Plans 

Under current law, a small minority of deeply troubled plans are projected to become insolvent. For the limited number of plans that, despite the adoption of all reasonable measures available to the plans’ settlors and fiduciaries, are projected to become insolvent, the Commission recommends that limited authority be granted to 

plan trustees to take early corrective actions, including the partial suspension of accrued benefits for active and inactive vested participants, and the partial suspension 

of benefits in pay status for retirees. Such suspensions would be limited to the extent necessary to prevent insolvency, but in no event could benefits go below 110% 

of the Pension Benefit Guaranty Corporation (PBGC) guaranteed amounts. To protect participants against potential abuse of these additional tools, the Commission 

further recommends the adoption of special protections for vulnerable populations 

including PBGC oversight and approval of any proposed actions, taking into consideration certain specified criteria. 

C. Innovation: New Structures to Foster Innovative Plan Designs 

To encourage innovative approaches that meet the evolving needs of certain plans 

and industries, the Commission recommends the enactment of statutory language 

and/or promulgation of regulations that will facilitate the creation of new plan designs that will provide secure lifetime retirement income for participants, while significantly reducing or eliminating the financial exposure to contributing employers. 

While the development of new flexible plan designs—including, but not limited to, 

variable annuity and ‘‘Target Benefit’’ plans—would permit adjustment of accrued 

benefits, in order to protect plan participants from this risk, these models would impose greater funding discipline than is required under current defined benefit rules. 

The adoption of such new models would be entirely voluntary and subject to the collective bargaining process. 

I believe that the assessments and recommendations outlined in the Commission’s 

report are well-developed and necessary to consider. The condition of many, and perhaps most, plans is such that their recovery is virtually impossible under current 

laws and rules. Something must be done to avoid failure of the plans and the catastrophic consequences which such failures would entail. 

VI. Conclusion 

In conclusion, the challenges confronting the sponsors of multiemployer plans are 

unprecedented. Without bold, decisive action, plan sponsors will no longer be able 

to provide these benefits, construction company employers will be forced to recapitalize the plans or the plans will be forced to become wards of the PBGC. Changes 

are needed to save the businesses of many contributing employers and to protect 

the retirement security of their hardworking employees. Multiemployer pension plan 

relief is not a union bailout, as contributions to these plans are funded entirely by 

employers, not unions. Reform based on the Commission’s recommendations will 

minimize government risk and alleviate the financial challenges facing the PBGC’s 

multiemployer guaranty fund. Without implementing the recommendations, the future failure of large plans will jeopardize the PBGC’s long-term viability and will 

put taxpayers on the hook. Enacting reforms will take pressure off the government 

for financial exposure while continuing to provide retirement security for participants. 

I want to close with a few succinct points about the nature of the problem: 

1. I am concerned that the status of many MEPP plans will rapidly pass a tipping 

point where the issues of a deficit plan, increasing retirements, reduced numbers 

of new employees under the plan, and withdrawal of employers will occur in a coincident manner that will accelerate the failure of many plans. Such convergence of 

factors could precipitate failure of the MEPPs and of the contributing employers. 

The prospect is made worse because delays in plan reporting could prevent trustees 

and employers from learning of the crisis, and result in delays in trying to devise 

a comprehensive solution. 

2. Available data on the status of plans to which our firm is signatory suggest 

that the plans cannot be restored to a healthy status by addressing only the funding 

side of the situation. We have tried that. 

3. One of the principal underlying assumptions concerning funding for construction MEPPs, i.e. a relatively steady flow of contractors and employees/beneficiaries, 

is simply not taking place. Prospective employees consider the high contribution 

rate combined with minimal benefit they accrue due to attempts to have an affordable plan, and conclude that the MEPP provides a low benefit return for them. Prospective employers who are not currently signatory to a plan are electing to stay 

28 

out of such plans to avoid the growing accrual of an undefinable eventual withdrawal liability. Contractors who are signatory to construction MEPPs are increasingly deciding to wind down and close their business rather than continue the 

growth of an unfunded liability and risk collapse or possible mass withdrawal from 

the plans. Employees who are fully vested and have the opportunity to take early 

retirement are doing so in record numbers, out of fear that plans may fail before 

their normal retirement age and that their benefits will be lost. 

4. Continuing efforts by the Treasury Department and the Federal Reserve system to maintain low interest rates exacerbate problems that MEPP fund managers 

and trustees have, making it nearly impossible for fund earnings to reach the investment earning assumptions which drive the calculations for retiree benefits. 

5. Because of employer liability issues associated with MEPPs, potential signatory 

contractors avoid signing union craft agreements, with the result that their employees are denied access to skills training, apprenticeships, and portability of benefits, 

all of which are necessary to attract and retain a competent pool of employees for 

our industry. 

I would be pleased to answer any question that the members of the Subcommittee 

may have. 

Thank you. 


79502-2.eps

79502-3.eps

leA 

Pension Fund Financial Tracking Chart for MuHi-Employer Pensions thai are funded through collectively bargained agreements in Indiana 

Dale I I' "" PI" OmenlLiatlility Funded 

Fund Participants Funded I Report Year (Nne 2b(4) Percentage I 

Filed column (t)) (refer to Note status (referta 

(1 )) Note (2)) 

Hwywkly 

Central States SE & SW Areas Pension Fund 

(Teamsters) 416,190 73,800 29,744,917,756 49,588,877,112 40.02% 58.89% Slt5.60mk 

(In Indiana the H-H Contract covers al l Counties except for Lake and 2010 422,473 80,961 30,317,238,578 49,859,280,682 39.19% 63.41 % $107,wk 

Porter Counties) 2009 433,199 98,799 31,264,471,536 48,623,124,034 35.70% 58.02% $99.101wk 

(Plan Year Jan t thru Dec 31) 2008 439,955 106,169 20,246,249,018 47,052,096,018 56.97% 73.20% $91.801wk 

EIN 36-6044243 2007 451 ,625 106,169 23,741,411,614 44,414,159,614 46.55% $85twk EIN: 36-6044243 2006 451 ,623 154,926 22,498,175,000 41,794,504,000 46.17% $85twk 

2005 450,812 156,744 20,936,185,000 39,653,718,000 47.20% S85Jv.rk 2004 454,322 157,306 17,425,705,000 35,150,841,000 50.43% S85lwk 

2003 459,947 164,767 18,320,948,000 33,701 ,366,000 45.64% $851wk 2002 $851wk 2001 464,944 187,229 11 ,176,581 ,000 31 ,652,006,000 64.69% $85/wk 2000 $85/wk 

Northwest Indiana Regional Council of Carpenters Pension Fund 2010 3,739 1,979 412,752,320 $ 684,265,858 39.68% 

Indiana Hwy Zone 1A (not part of Hwy Contract) 2009 3,860 2,198 395,109,572 $ 642,215,122 38.48% 

Indiana BldgZoneZI 2008 3,840 2,196 291,485,416 $ 576,509,587 49.44% 

(Plan Year July 1 IhruJune 30j 2007 3,840 2,196 169,261 ,772 $ 460,539,024 63.25% 

EIN: 51-6123713 2006 3,621 1,979 133,979,608 $ 387,779,765 65.45% 

2005 3,601 1,887 111,1 44,403 $ 353,491,180 68.56% 2004 3,350 1,846 74,608,825 $ 308,697,190 75.83% 2003 3,314 1,731 60,515,176 $ 289,059,078 79.06% 2002 3,399 1,798 65,475,774 $ 280,774,548 76.68% 

2001 3,211 1,897 24,057,562 $ 256,045,926 unknown 2000 3,185 1,746 (3,625,691) $ 223,482,391 101.62% 

H IBid •• 

Indiana State Council of Carpenters 2011 6,926 2,610 502,000,310 845,069,080 40.60% 74.00% $ 

Indiana Hwy Zones 2A. 26, 2C, 4A, 46. 4C & 40 2010 6,799 2,532 574,760,518 883,378,164 34.94% 73.83% $ 

Indiana Bldg ZonesZl . Z2. Z3. Z4, Z5, Z6. Z7A. Z7B & Z8 1/t4/2011 2009 7,117 3,020 472,750,070 720,744,701 34.41 % 65.43% $ 5.48 5.0

(Plan Year April11hru March 31) 2008 7,046 2,961 230,041 ,737 573,979,415 59.92% 85.11%'"""'1 $ 4.64 4.2

EIN: 35-6060378 2007 6,987 2,961 172,946,339 521 ,507,180 66 .84% $ 3.92 3.7

2006 6 ,375 3,364 108,334,390 403,374,463 73.14% $ 3.90 3.62005 6 ,547 2,693 147,444,971 436,216,529 66.20% $ 3.35 3.32004 6,489 2,646 98,594,337 375,191,593 73.72% $ 3.10 3.1

2003 6,616 2,671 144,548,539 366,881,926 60.60% $ 2.90 2.9

2002 $ 2.80 2.8

2001 $ 2.60 2.6

2000 $ 2.30 2.3

Notes regarding Indiana State Council of Carpenters Pensicn Plan 

Th s pension plan is funded through contributions from Zones 2A. 2B 8. 2C of the Carpenters Statewide Highway and Heavy Agreement, Zones 1. 2 8. 3 of 1he two Northeast Indiana Building Agreements and Zones 5. 6. 7A. 7B 8. 8 of the Southern Ind

Building Agreement 

79502-4.eps

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Pension Fund Financial Tracking Chart for Multi-Employer Pensions thai are funded through collectively bargained agreements in Indiana 

Fund 

Carpenters Local Union 215 Pension Fu nd 463 178 34,702,690 64.023.659 1 45.80% 6.46 

Indiana Hwy Zone lB 2010 507 229 33,642 ,306 60,630,586 44.51% 6.46 Indiana Bldg ZoneZ2 2009 603 355 32,707,055 54 ,809,825 40.33% 66.58% $ 5.62 

(COvers Pulasl<i, Benton, 'Mlite, carroll. Waiter), Tippecanoe & 2008 517 273 16,464,235 47,204 ,876 65.12% "Ia $ 4.87 

Oinlon Counties in Indiana) 2007 646 417 15,767,997 45,029,120 64.98% $ 4.74 

(Plan Year April 1 thruMarch31) 2006 508 278 13,392,900 40,848,217 67.21 % $ 4.59 

ErN: 35-6244812 2005 471 239 12,769,087 37,322 ,852 65.79% $ 4.37 

2004 491 257 10,889,194 34,500,368 68.44% $ 4.1 0 

2003 501 284 9,257,959 28,450,665 67.46% $ 4.05 

2002 472 316 3,949,722 24,609,094 $ 3.65 2001 434 297 3,387,035 22 ,996,217 85.27% $ 3.50 

2000 $ 3.25 

Indiana Carpenters Pension Fund 1201 1 6,541 2,576 473,828,508 $ 782 ,853,106 1 39.47% 7.05 

Statewide Indiana Hwy and Hvy Agreement Zones 3A, 36. 3C & 3D 101512011 2010 6,513 2,693 438,644,654 $ 726,306,427 39.61% 6.52 

Centrallndiana 6IdgAgreement Zones l . 2. 3&4 1011312010 2009 6,849 3,384 272,001,403 $ 525,869,067 48.28% 5A9 

(Plan Year Jan 1 thru De<: 31) 2008 6,857 3,528 145,803,711 $ 478,851,494 69.55% 4.66 

EIN: 35-6057648 Plan 001 2007 6,857 3,528 124,901 ,570 $ 452 ,854 ,045 72.42% 4.15 

2006 6,375 3,364 108,334,390 $ 403,374,463 73.14% 3.85 2005 6,529 3,086 94,919,644 $ 3.85 2004 5 ,718 3,488 53,874 ,672 $ 3.55 2003 5,891 2,755 63,034,595 $ 3AO 2002 5 ,835 3,045 (5,219,644) $ 252 ,432 ,356 3.00 2001 5 ,765 3,102 (10,898,360) $ 256,968,001 2.60 2000 2.25 

Lower Ohio Varrey District Council Pension -.1 2010 931 253 36,140,640 $ 80,723,245 55.23% unknown 

Trust Fund 2009 1,336 662 30,167,613 $ 74,274,455 59.38% unknown 

(Carpenters) 2008 1,408 769 29,241 ,677 $ 77,552 ,177 62 .29% 

(Plan Year Oct lthru Sept 30) 2007 942 303 15,111 ,851 $ 74,314 ,522 79.67% 

EIN: 35-6077238 2006 1,164 536 17,554,439 $ 73,862,781 76.23% 

2005 1,189 562 13,694,741 $ 69,565,052 80.31% 

2004 1,432 758 11 ,129,648 $ 64 ,068,514 82 .63% 

2003 1,474 838 5.616.982 $ 57.083,402 90.16% 

2002 1,840 912 4,822,622 $ 51,824,865 90.69% 

2001 1,805 1,220 5,025,602 $ 54,963,028 90.86% 

2000 1,737 1,292 (314,653) $ 56,013,049 100.56% 

Iron Workers District Council of Southern Ohio & 1 2011 8,481 3,273 893,767,072 1,496,576,907 40.28% 71.79% 

Vicinity Pension Trust 2010 8,652 3,645 933,152,478 1,477,035,118 36.82% 69.43% $ 7.70 

(Plen Yeer FeolthruJan31) 2009 8,905 4,161 952,970,890 1,422,361,092 33,00% 62 .70% I $ 7.50 

EIN: 31-6127229 2008 8,697 4,049 680,125,350 1,320,912 ,823 48.51 % 75.95% $ 7.20 

2007 8,695 4,049 490,691 ,628 1,136,474 ,984 56.82% $ 2006 8,386 4,327 471 ,202 ,345 1,071,328,863 56.02% $ 2005 8,315 3,862 417,830,253 999,906,453 58.21% $ 2004 8,390 3,876 343,788,115 925,222,020 62 .84% $ 2003 8,300 4,041 382,299,470 882,539,007 56.68% $ 2002 7,958 4,313 264,525,287 834 ,893,490 68.32% $ 2001 $ 2000 8,235 4,419 $ 282,177,913 $ 863,719,077 67.33% 

79502-5.eps

ICA 

Pension Fund Financial Tracking Chart for Multi·Employer Pensions that are funded through collectively bargained agreements in Indiana 

Fund 

Notes. 

Weblink to Pension Plan Reform Legislation (PPA 2006) 

Date 

Report 

Filed 

Plans with funding levels as follows shall be treated as fully funded 

lol# Plan 

Report 

column (1)) 

Total # 

Active ITotal Current Unfunded 

P.artidpants Uabilit'l S (= ,line 2b(4) 

(line 2b(3)(c)) column (2) -line 2a) 

http://''IWWJ.dol.gov/EBSAlpensionreform.html 

Total Current Liability S 

(line 2b(4) column (2)) 

2008: over 90%, 2009: over 92%, 2010: over 94%, 2011: over 96% 

Current Liability IFunded 

Funded percentage for 

Percentage monitoring plan 

(refer 10 Note status (refer to 

(1)) Nole(2)) 

Plan Status Definition of: Length of funding improvement plan 

C Green Zone (Green) ::J Liabilities at least 80% or more funded Not required 

Endangered (yellow) Liabilities less than 80% funded but greater than 65% funded. 10 yrs 

Seriously Endangered (Yellow) Less than 80% funded and there is a projected funding deficiency within 7 years. 15 yrs I I Less than 65% funded 10 yrs 

i

Surcharge until l

FIP In place 

1st yr 5%, 2nd yr and 

Endangered Status is defined as a plan that is NOT Critical AND it is described as either: (1) Funded percentage is less than 80% or (2) there is a projected funding deficiency within 7 years 

Seriously Endangered Status is described as a plan that is NOT critical and it is both (1) Funded percentage is less than 80% or (2) there is a prOjected funding deficiency within 7 years. 

Critical Status is defined as meeting one or more of the following: (1) Funded percentage less than 65% and there is a projected funding deficit within 5 yrs or an inability to pay benefits for next 7 years o

(2) Projected funding deficiency within 4 yrs, or (3) Inability to pay benefrts for next 5 yrs, or (4) Value of benefits for non-actives is greater than for actives; contributions are less than current year 

costs (ie "normal cost"); and projected funding deficiency within 5 yrs. 

Notes: 

(1) Funded current tiabilny percentage: Is a ratio of the "Current value of assets" (Line 2a of IRS Schedule MB (Form 5500» to line 2b(4) "Total" column "(2) Current as of the valuation date, e

percentage. 

(2) Funded percentage for monitoring plan status: Is a ratio of the "Actuarial value of assets for funding standard account" (Line 1b(2) of IRS Schedule MB (Form 5500» to "Accrued liability under unit 

as a cost method" (Line 1c(3), as of the valuation date, expressed as a percentage. 

All financial and number of participants infonnation was sourced from Department of Treasury, Internal Revenue Service Schedule MB (Form 5500) Annual Return/Report of Employee Benefit Plan docum

filed by the respective pension plans and publicly available. Applicable Form 5500 line numbers are noted 

" = Recently updated information 

Attached to the "Adobe Acrobat" (pdf) version of this spreadsheet (for reference purposes only) is a copy of the IRS Schedule MB (Form 5500) as filed by the Indiana State District Council of Laborers & 

Hod Carriers Pension Fund for Plan Year 2010. 
32 

Chairman ROE. Thank you, Mr. Force. 

And with the panel’s uplifting testimony, now we can get started, 

you all painted a pretty bleak picture, but there are solutions to 

this, and I know certainly in a bipartisan way, we are ready to do 

this. 

Mr. Force, I think you laid it out very clearly and let me just 

summarize especially in the crafts industry and the contractor industry where you are, I know that certainly attracting good people 

that the pension benefit is a huge plus out there if a man or 

woman working for you and your business can go to this job or that 

job or that job and realize they are not losing their pension contribution, that is a huge benefit I think. 

Problem is we have a good many plans that are underfunded I 

think because of several reasons. One you brought up; the downturn in the market. Both—and people forget that the market, and 

Mr. Perrone pointed out, in early 2000s we had a recession then 

also followed by a much deeper recession in 2008. 

We have a—I think we have a system where calculating the benefits has been unrealistic. Some have calculated it at 7 to 7.5 to 8, 

8.5 percent return every year without any downturns. I think that 

was a mistake—I think you have done—that is unrealistic. 

I think certainly the economy, this particular recession hit certain parts of the economy, for instance construction housing market, much more severely than others. 

Mr. Perrone, you are involved in a market where we all have to 

do every day, which is eat, and you are in a very fortunate—because we are going to buy food but we don’t necessarily have to buy 

a house and—or a new home or a new business. 

We may live—stay in the old building. So I think that is why 

some plans have been able to survive and stay in the green zone 

or relatively safe and others have been in the critical—trucking, 

construction, other entities like that, so we have had that problem. 


79502-6.eps
33 

And I think lastly, and Mr. Andrews and I were talking about 

it, I think certainly one of the solutions that we have to have is 

to be able to allow you because I went through this when I was the 

mayor of a city and a defined benefit plan, when things are going 

well your contributions may be 5, 6, 7 percent of the person’s income, but all of a sudden the market takes a dive your actuaries 

say excuse me, you have got to donate—you have got to put 20 percent away a year, and as an employer, there is no margin to do 

that. 

You can’t invest in any new equipment or anything. I think we 

have to have a way and we have to talk to Ways and Means about 

this because it does affect taxes and we don’t have any jurisdiction 

over that, but to allow you during good years to be able to continue 

those contributions so that in the bad years they level out over 

time and I think that is going to be one of the solutions. 

I think another solution is going to be an increased PBGC contribution. I don’t know how much that will be. That can be determined and you will have to obviously, with the unions, Mr. 

Perrone, and you all have been very, very helpful in this is to look 

at decreasing the contribution. We have millions of people out 

there, working people every day that are retired now that are relying on us to do our jobs so that they continue to get their benefits 

that they have been promised and earned I might add. 

Mr. Jeszeck, I want to ask you if you could just discuss just a 

little bit of the contagion effect how one plan that is in trouble will 

affect another plan. If you hit your mic—— 

Mr. JESZECK [continuing]. Mr. Congressman, and I think the situation that Mr. Force—his company could potentially be an example of that. He contributes to multiple multiemployer plans. So if 

you have a company that is in a number of different plans and goes 

bankrupt, not only does it affect the financial status of the principal plan, but it would affect the financial status of all of these 

other plans. 

So if you have—these other plans could be in green status, could 

be financially, you know, solid and yet if some—an employer which 

is in—may only be in part of that plan but in one of these other 

plans goes bankrupt, it would have an effect on these and these 

other—and all of these plans. 

An example of this that came to us when we did our work was 

the Hostess company, which was in a considerable number of multiemployer plans and essentially, the contagion spread to their 

bankruptcy and one—and that really affected one plan hurt a number of other plans as well. 

Chairman ROE. My time is about expired, but Mr. Jeszeck, you 

mentioned the ones that are in the red zone—do—and we have a 

lot fortunately in the green zone because things have gotten better. 

How much is that liability in the red zone and this will go to Mr. 

Gotbaum also, how much do we have to bring the PBGC rates up 

to make up or decrease the benefits in those in the red zone right 

now? 

Mr. JESZECK. Well, I would have to defer to Mr. Gotbaum on 

PBGC. They do projections of the changes in revenue that would 

be necessary to pull out the—get these plans out of red zone status. 

Chairman ROE. Mr. Andrews? 

34 

Mr. ANDREWS. Thank you, Mr. Chairman. I appreciate the panel. 

I think we have four problem solvers here this morning. I really 

appreciate that. 

Mr. Gotbaum, you have really shown the desire to lead your 

agency and be a problem solver. 

Mr. Jeszeck, the GAO is always a rich source of data and understanding. 

Mr. Force and Mr. Perrone, I again want to commend you for 

participating in the negotiation of the joint committee that I think 

is given a very solid place for us to begin. 

Mr. Perrone, I think you have given us in particular a compelling 

case study as to how we might solve this problem in other places 

with the Kroger/UFCW agreement that you mentioned in your testimony. Now we had a representative of Kroger before the subcommittee a few hearings back who told exactly the same story and 

I think it bears repeating. 

My understanding is in 2011 there were four red zone plans 

that—of people who worked at Kroger supermarkets, UFCW employees. Is that right? 

Mr. PERRONE. Yes, Congressman Andrews. 

Mr. ANDREWS. And my understanding is that you then collectively bargained a solution of that, the union and the management 

came together. Is that right? 

Mr. PERRONE. That is also correct. 

Mr. ANDREWS. And there were 180,000 participants that were 

distributed among those four red zone plans. My understanding is 

that we now have one fully funded green zone plan. Is that right? 

Mr. PERRONE. That is correct, and I believe that the person that 

came before the committee was Scott Henderson, the Treasurer of 

Kroger who sits on a fund—another fund with me which we had 

a discussion about some potential resolutions of other problems 

that could ultimately come up. 

Mr. ANDREWS. Now my understanding is that one of the ways 

that you got from 71 percent funding to 100 percent funding was 

a credit facility where Kroger and the plan were able to borrow a 

significant amount of money, take advantage of low interest rates, 

and plug the gap. Is that how you did it? 

Mr. PERRONE. Basically what Kroger did, they went to the capital markets. They arbitraged the interest rate to where that they 

took the rate that they were able to get on the open market, which 

was around 2 percent versus the 7.5 percent for the fund. And they 

were able to save a considerable sum of money on the contributions, which is the conversation the treasurer and I had the other 

day, is whether or not there might be some ability to go to investment banks for instance, take the contributions that are coming in 

and use those contributions as a vehicle to service the debt and reduce or arbitrage the interest rates on that. 

Mr. ANDREWS. Now in your testimony you mentioned I think it 

is quite accurate that not all potential borrowers would have the 

creditworthiness that Kroger has, and you indicated there might be 

another mechanism where we could enhance that credit perhaps 

through a guarantee system or what have you. 

Mr. Gotbaum, not speaking authoritatively for your agency, but 

just your first impression, if we were able to construct proper proVerDate Nov 24 2008 10:38 Jan 13, 2014 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 G:\DOCS\113TH\HELP\113-8\79502.TXT DICK
35 

tections against reckless borrowing, something that Congress has 

not been terribly good at on our own I must admit, but if we could 

protect proper governors and parameters around those deals, do 

you think that some sort of credit enhancement in the form of a 

public guarantee would be a useful tool in achieving the result like 

we achieved in the Kroger/UFCW case? What do you think about 

that? 

Mr. GOTBAUM. This is not something on which there is, as far as 

I know, an administration position, so I am giving you my personal 

reaction, my personal reaction. 

Mr. ANDREWS. Yes, understood. This is just your opinion. Yes. 

Mr. GOTBAUM. There is—I think it is a great thing that the government thinks about all possible ways to be supportive of multiemployer plans. I think you have put your finger on one of the important issues as to how we do it. 

This is a system that is not funded by taxpayers, and it is a system that we want to keep not funded by taxpayers. The way we 

think that is is to try as much as much possible to enable plans 

to do self-help on their own, but to facilitate them so my—— 

Mr. ANDREWS. You mentioned one other thing—— 

Mr. GOTBAUM. So my reaction is be—I think this is something 

which we can and should take a look at. 

Mr. ANDREWS. One other thing that comes to my mind on this 

is that the CBO would score such a guarantee as costing the Treasury money, you could construct a system where there is a fee that 

would have to be paid by the plan to the government that would 

offset and make it deficit-neutral if you did such a thing, where the 

fee would still be less in order to buy the credit enhance—anyway, 

it is a way to approach the problem. 

Thank you. 

Chairman ROE. I thank the gentleman for yielding. 

Chairman Kline? 

Mr. KLINE. Thank you. Thank you, Mr. Chairman. 

Thanks to the panelists for being here today. 

Director, always good to see you. Appreciate your testimony and 

that of all of the members of the panel. 

I think you said, Director, that it is complicated and just listening to the conversation here today, we have got arbitrage and interest rates and guarantees and all that sort of things and it is complicated, but it being complicated doesn’t mean that we don’t need 

to address it. And there was some testimony today and some statements perhaps from some of my colleagues about how it is really 

not all that bad that, you know, most of the plans are sort of in 

green. We just have a few that are in red, and at the same time 

I think some, over half of the plan participants are in plans that 

are in yellow or red zones. 

And you, Director Gotbaum, have said that there is a 90 percent 

likelihood of insolvency in this multi-employer insurance program 

in the next 20 years. That is not very encouraging, that there is 

a 90 percent likelihood of insolvency. 

So again, it spurs the activity of this committee and in cooperation with you and others to do something about that. So in view 

of that 90 percent likelihood of insolvency, what does the PBGC do? 

How can you continue to pay promised benefits? 

36 

Mr. GOTBAUM. Mr. Chairman, thank you for being here and for 

asking the question. PBGC—our job is to be a safety net for plans. 

In some respects, I think of the PBGC as the multiemployer back 

up to multiemployer plans. And that means that in the same way 

that we worry about the financial soundness of the plans we have 

to worry about the financial soundness of PBGC. 

Now, for a very long time PBGC premiums were low, and in the 

multiemployer program, they were enough. What has happened 

since is that it has become clear that even though most plans will 

not end up on the PBGC’s door, enough will so that we don’t have 

our—the current resources. 

So what we hope to do is to work with this committee, with the 

Congress and others, to do two things. One is to figure out what 

changes make sense for multiemployer plans. And then, secondly, 

with those changes what does the PBGC need in order to be the 

safety net that ERISA intended? 

We think those discussions have to be done together because if 

you say to me: ‘‘How much money would you need to get—to take 

care of all of the plans that might go insolvent?’’ The answer is: 

‘‘Too much.’’ 

But if the question is: ‘‘How much—what would PBGC need in 

order to deal with the problems that will really occur after you 

have done your work over the next 2 years?’’ That, I have got to 

say, I think is manageable, and that is what we look forward to 

doing. 

Mr. KLINE. Without any changes to current law and we are intent, I believe, on changing current law, but without any, what 

would premiums have to go to, to allow you to continue to pay the 

benefits. Have you looked at? Do you know what that number is? 

Mr. GOTBAUM. To be honest, Mr. Chairman, that was a sufficiently high number that I didn’t run around and ask my staff for 

a detailed estimate. [Laughter.] 

Mr. KLINE. I can easily imagine. We now have—I see my time 

is about to run out—but we have the a report from the NCCMP 

that is I think helpful. Are you or have you taken a position on 

that that that is the way to go? Are there modifications to it? Do 

you have a comment? I think you addressed that briefly in your 

testimony, but where are you, having looked at that input? 

Mr. GOTBAUM. As I said in my testimony, we feel very strongly 

that because these situations are complicated, it is important to 

start with the solutions that the industry themselves figure out, 

but that doesn’t mean we stop there. 

What we have done since we received the report, we have got the 

report a couple of weeks ago I think. Is we are starting to analyze 

it. We are trying to figure out what the recommendations mean. 

We are still some time away from analyzing those. Once we do, 

then we can come back and give you a sense of what are the implications. 

Mr. KLINE. And we will be looking for that. We also are analyzing it. We appreciate the product and we appreciate your testimony, and I yield back. 

Chairman ROE. Thank the chairman for yielding. 

Mr. Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. 

37 

Mr. Gotbaum, following up Mr. Andrews’ suggestion, if there was 

a guarantee, well really a guarantee in any way, how could we possibly be any worse off with this suggestion? How could we be any 

worse off if you adopted Mr. Andrews’ suggestion because if they 

didn’t pay the loan, I mean, we are guaranteeing it anyway, we 

couldn’t possibly be any worse off, could we? 

Mr. GOTBAUM. One of the things that I have learned, Mr. Scott, 

is that pensions—if as Mr. Kline said, if pensions are complicated, 

multiemployer pensions are even more complicated. 

Mr. SCOTT. Well, let me—— 

Mr. GOTBAUM. And so my only point is I do think we need to 

think carefully and well about what we can do, what we can do to 

be helpful. What I hope is that especially when you do that, you 

give the plans enough flexibility and enough range of tools so that 

the plans can each solve their own set of problems. 

Mr. SCOTT. Well, is withdrawal from plans by corporations a 

problem now? 

Mr. GOTBAUM. Mr. Scott, withdrawal—the—withdrawal liability 

is in some respects the glue that holds the multiemployer system 

together. The way I think about the multiemployer system is it is 

an agreement entered into by many employers that in exchange for 

not having to go through the hassle of worrying about individual 

administration of pensions, they are bound together. 

Now the issue is that if an employer can just walk away without 

consequence, then employers are not bound together, and so one of 

the fundamental issues we have is can you provide flexibility without undoing the basic glue that holds—— 

Mr. SCOTT. But that is an issue. What is the present law? Can 

somebody walk away without any kind of legacy liability? 

Mr. GOTBAUM. No. The way the law currently works is that if an 

employer withdraws, there is withdrawal liability. They have a proportional share of the ongoing obligation of the plan. What plans 

have said to us and what employers have said to us is: ‘‘We don’t 

think that is fair.’’ 

Mr. SCOTT. Proportional share? They don’t have to take the 

whole weight—if they stay in, if things go south, they are stuck 

holding the entire bag. If you are a little teeny company and a big 

guy goes broke, you have now assumed his—that big liability. Is 

that right? 

Mr. GOTBAUM. One of the issues that we do have is that with the 

change in the employer makeup of some plans a lot of employers, 

as Mr. Force said, who thought they were in basically a defined 

contribution plan, that they didn’t have to worry once they wrote 

the check, now worry about residual liability. And that is why we 

are trying to figure out—are there ways to fairly and while protecting the integrity of the plans allow flexibility to plans. 

Mr. SCOTT. Okay, well if somebody goes bankrupt, their liability 

goes to the other corporations ultimately to the PBGC. What if they 

reorganize in bankruptcy and come right back out? What happens 

to their liability? 

Mr. GOTBAUM. Generally, in bankruptcy, the obligations of companies including their obligations to pensions are what the lawyers 

would say is, ‘‘discharged in bankruptcy.’’ So they have shed them. 

38 

Mr. SCOTT. So if they reorganize, they have shed themselves of 

that entire liability. 

Mr. GOTBAUM. Yes, Mr. Scott. 

Mr. SCOTT. You have indicated that the premiums have gone up 

from $9 to $13 this year. Is there any thought of basing the premiums on which zone you are in? 

Mr. GOTBAUM. We are in—Mr. Scott, we are in early days on 

that exact question. One thing of which we are confident is that we 

really do need to rethink our program. We need to rethink how we 

charge because we want to preserve the PBGC as a safety net. 

Mr. SCOTT. Is that being thought of that you get charged by the 

zone? 

Mr. GOTBAUM. It is clearly something which we should consider, 

yes. 

Mr. SCOTT. And now in calculating your annual contribution, 

that can go up and down with what zone you are in, is there any 

problem with the formula that kind of compounds the problem? Is 

the formula about what you have to put in this year, is there any 

problem with that formula? 

Mr. GOTBAUM. Mr. Scott, various plans have told us that although the basic architecture that the Congress created in 2006 

makes sense, that some of the ways we have implemented the rules 

actually leaves them with uncertainty. And so they have come back 

and suggested that there be more flexibility in terms of zone certifications and the rules. That is something which we think ought to 

be considered and thought through as part of this review. 

Chairman ROE. Thank you for yielding. 

Mr. Messer? 

Mr. MESSER. I am a freshman here. It took me a second to get 

the—my mic on. 

I want to thank the panelists, you know, in a time where Washington seems to not be able to agree about much of anything, it is 

nice to see a group of people, that are coming together and trying 

to work and solve problems. I want to particularly thank Harold 

Force for being here today. He is a constituent from Indiana’s 6th 

Congressional District, the area I represent. 

The Force family has been a fixture and pillar of the Bartholomew County community for many, many years and appreciate 

the wisdom of his testimony today. We had an opportunity yesterday to speak at some length about the challenges that we face and 

I am going to ask you to expand a little bit upon part of that conversation today. 

You know, to the average citizen sitting out here watching this 

discussion, one, if they are able to stay awake, which, it is an important issue, but it is just a challenge, they would ask the simple 

question well, wait a minute. If we don’t have enough money in 

these funds and we have got benefits to pay out, why don’t we just 

pay more and for the individual contributors in the plan? 

And if you could, Mr. Force, if you could expand a little bit on 

the way that contributions have risen already in recent years and 

how those have spiked, and then as you answer that comment a 

little bit about whether that is a reasonable answer moving forward. 

39 

Mr. FORCE. Thank you, Congressman Messer. This is a complicated issue. You will find attached to my written testimony a 

table and some graphs that I think in the Indiana context define 

how the contributions have increased rather rapidly over the past 

15 years to the various multiemployer plans of which we are part. 

I would also clarify that each of these multiemployer plans is inside of a larger collective bargaining agreement that defines the results of a negotiation between contractors or a contractor association and the respective building trades in terms of what the wages, 

what the benefits, including pensions, health and welfare, and 

other things might be. So we are constrained by the specific terms 

of those collective bargaining agreements. 

We believe, certainly I believe, that the key piece that has to be 

addressed is how the trustees, and trustees of the plans include 

labor and management representatives as well as the plan managers, these trustees need tools that they don’t currently have to 

be able to look at the entire setting of what is going on—the number of retiree beneficiaries, the number of pending beneficiaries, 

the number of future beneficiaries, contributors to the plans 

through their employers, and the assets of the plans themselves— 

to determine what kinds of benefits can be provided, how those 

benefits can be best protected to match the assumed rates of returns in those plans to what can be achieved in the marketplace 

at an acceptable level of risk. 

Those tools are not out there, and that is what we need. I am 

not here to suggest a bailout or a guarantee. What we need is tools 

so that our trustees who are close to the action can make decisions 

in the best interests of our employees and their beneficiaries. 

Mr. MESSER. Yes, thank you. I will just follow up with this additional question. You know, out where I live in Indiana’s 6th Congressional District, 19 rural counties, strong manufacturing base, 

the number one issue is jobs. Folks are—want a healthy economy. 

They want the opportunities that will come with that healthy economy and believe that we ought to be able to go into work and try 

to create an environment with more jobs. 

Could you talk or comment just in a minute about how the uncertainties connected with these plans have influenced your business decisions at all over the course of the last several years? 

Mr. FORCE. Few things light a fire under your ambition like the 

condition of these plans. I would say that, but quite honestly, we 

have a terrific cadre of construction workers that are part of our 

team. They are efficient, they are hard-working, they are productive. They have their own families to take care of and we are highly incented to do a good job for our customers to be competitive, 

to get the jobs done timely. 

And keep in mind that in the construction industry, from the day 

that you start a project, the whole objective is to work your way 

out of a job and that those employees in the back of their mind are 

always thinking: ‘‘Where is our next job? What is next?’’ 

So that goes to the fundamental reason for these plans existing. 

Our people need to be able to take their skills and their benefits 

package with them from employer to employer. So in Indiana, 

where we are kind of a shirt sleeve society, we are working hard 

to make sure that everyone gets their job done efficiently. And we 

40 

need a way to keep these programs viable so that our people have 

a reason to be attracted into these plans and that we as employers 

do not have this very black cloud hanging over us. 

Mr. MESSER. Thank you. 

Chairman ROE. Mr. Tierney? 

Mr. TIERNEY. Thank you, Mr. Chairman. I am going to yield my 

time to Mr. Scott. 

Mr. SCOTT. Thank you, and I thank the gentleman for yielding. 

Mr. Gotbaum, when the market collapsed all the programs suffered. The market has come back. Is there any reason why the program—why the plans did not benefit from the stock market recovery? 

Mr. GOTBAUM. Mr. Scott, plans—all plans suffered when the 

market collapsed and it is true that the market has come back, but 

what is not true is that it has come back so much that plans aren’t 

behind the eight ball. They are and so—— 

Mr. SCOTT. Are there any stocks that they could not invest in, 

the pension-eligible investments where the market went up but 

those—went up with stocks that the pensions were not able to invest in? 

Mr. GOTBAUM. Mr. Scott, I am not aware that the particular investment practices of multiemployer plans kept them from participating in the recovery. I think the fact is that although we have 

had a market recovery for which we are all very grateful, it has 

not been yet a strong enough recovery so that plans are in the situation where they had hoped to be 5 years ago. 

Mr. SCOTT. Has there been any suggestion that plans invest 

mostly in insurance products where the rate of return could be 

more predictable and the vagaries of the market would be borne by 

the insurance companies rather than the plans themselves? I 

mean, they sell annuities all the time so this wouldn’t be anything 

new. 

Mr. GOTBAUM. Yes, Mr. Scott. There are some plans—I don’t— 

I can’t tell you how many in the multiemployer universe versus 

not. There are some plans which have decided that they are better 

off, rather than taking all of the risks of investing in the stock market to, in effect, dedicate some of their resources and cap the risk 

by buying an insurance product or staying with bonds or with 

something like that. 

There are plans that do that. However if you do that, when you 

are underfunded, in effect, you are locking in your underfunding. 

And so the number of plans that have chosen to do that so far is 

limited. 

Mr. SCOTT. Well, you lock in underfunded. You also limit—cap 

your risk. If you are still out there on a limb things could get 

worse. 

Mr. GOTBAUM. They could, but I think to the credit of plans, 

what we see is that plans want to get out. They want to get whole. 

They are not trying to lock in losses and just come to the doorsteps 

of the PBGC. They are trying to solve their problems on their own. 

Mr. SCOTT. What is the typical annual contribution? We are talking about tax fees in the $9 going up to $13. What is the typical 

contribution? 

41 

Mr. GOTBAUM. Mr. Scott, the range of contributions is all over 

the lot because there are, for example, the UFCW plans, which are 

good plans, okay, are plans for workers who, frankly, who earn less 

than some of the construction workers that work for Mr. Force. 

And so, the range of contributions you get depends in part on 

what the industry can afford, et cetera, so there is a wide range. 

If it would be helpful, I am happy to submit—— 

Mr. SCOTT. You are charging everybody the same thing and if you are talking about $100 annual contribution, a $13 fee would be 

overwhelming. If you are talking about a $2000 or $3000, $5000 

contribution, then the fees in this range wouldn’t be troublesome. 

Mr. GOTBAUM. Mr. Scott, you are absolutely right that as I said 

before I think the PBGC program does need to be rethought. It 

needs to be made fairer and it needs to be done in a way that 

makes sure that the PBGC is always there as a safety net. 

Mr. SCOTT. Is there any thought in limiting the liability of small 

companies in a multiemployer plan so that if you are a small company your liability can’t be—your ultimate liability can’t be say 

more than twice your portion or something like that? Rather than 

the small company being involved, getting caught with a overwhelming debt that they just can’t pay? 

Mr. GOTBAUM. Mr. Scott, I don’t know. Let me—it is certainly 

something worth thinking about. Let me circle back for the record 

if I may on that one. 

Mr. SCOTT. Thank you. 

Chairman ROE. I thank the gentleman for yielding. 

Mr. Hinojosa? 

Mr. HINOJOSA. Thank you, Mr. Chairman. 

I have to agree with Rob that I am very impressed with our witnesses and the knowledge that you have on these pension plans 

and your willingness to try to work out something for the benefit 

of the employees, and I compliment each and every one of you. 

My first question is to Josh Gotbaum. Mr. Gotbaum, in your testimony, you indicated that Congress has an opportunity within the 

next 2 years to preserve and enhance the multiemployer plans on 

which so many small businesses and workers depend. 

Would increasing the premium paid to PBGC by the multiemployer plans improve their liabilities? And if yes, how much do you 

believe premiums could be increased without unduly burdening employers and their plans? 

Mr. GOTBAUM. Mr. Hinojosa, thank you for asking that important 

question and I am—we think that it is important, just for the same 

reason that it is important that pension plans be financially sound, 

that PBGC be financially sound so that we can provide the safety 

net, so that we can help plans in the ways that they have asked. 

And that clearly is—would involve an increase in the level of premiums. As Mr. Scott suggested, it probably ought to be just not an 

across-the-board increase, that we ought to think about what is fair 

and what makes sense based on individual plans and individual 

workers, et cetera. 

And we are not at a position to tell you yet what that ought to 

be. We hope to work that out as part of your discussion. What I 

will say is that, how much that is also depends on what tools you 

give plans to avoid coming to the PBGC. 

42 

If all of the plans that right now say they don’t think they can 

get out of red status, if all those plans come to the PBGC, then I 

don’t even want to mention how high that number is going to be. 

Okay? But it is a very high number. It is a number that is high 

enough so that we would say it is a problem for plans. 

However, what we have learned thus far is that if the plans 

get—if some of the plans that are in distress get tools to help solve 

their problems on their own to avoid coming to the PBGC, then the 

resulting premium increase is less, ought to be less, ought to be 

much less. 

And so what we hope to do over the months ahead is to work 

with you all and say if you agreed to the kinds of changes that for 

example the panel has discussed and that NCCMP has discussed, 

then it looks like what PBGC would need is this. That is the discussion we hope to have with this committee after we have had a 

chance to sharpen our pencils a bit. 

Mr. HINOJOSA. Thank you for your response. We will work with 

you. 

I would like to ask the next question to Director Jeszeck and also 

to Mr. Perrone. See if you can respond. 

If Congress permits plans to reduce certain retiree benefits, what 

process should the plan have to follow? And secondly, how do we 

make sure that the retirees are given an opportunity to submit 

their views and receive fair consideration? 

Mr. JESZECK. Well, Congressman, in the report which will be released later this month, we do look at some of these issues. I think 

in any case, any reforms that Congress chooses to implement 

should take into account the interests of all the stakeholders and 

certainly that would be retirees, it would be current workers; that 

that would be the plans, the employers, PBGC, the taxpayer. 

So in all those cases, those interests should be taken into account. Clearly, any change that would involve the reduction of benefits would be a very significant one. It certainly, it cuts to the 

heart of ERISA, so we would think that anything that would happen in that case would have to have sufficient protections, the potential for review, and input from the affected parties. 

Mr. HINOJOSA. Do you—Mr. Perrone, can you make your response short? 

Mr. PERRONE. I don’t think that retiree benefits of people that 

are already retired should be reduced; however, in some plans that 

are in a position that are insolvent, if ultimately they are going to 

be reduced and only in those cases would you take a look at potentially having any reduction that would take place at all. 

Mr. HINOJOSA. Thank you. 

Thank you, Mr. Chairman. 

Chairman ROE. Thank the gentleman for yielding. 

I thank the panel for again a great discussion. We will continue 

this discussion until we have the tools, Mr. Force, to be able to help 

solve this problem. 

I will now yield to our ranking member for his closing comments. 

Mr. Andrews? 

Mr. ANDREWS. I, Mr. Chairman, share your praise for the panel. 

Really, well done, very helpful to us. 

43 

Ultimately, this issue is about the small businesses and middleclass retirees of the country. We are not going to have a true and 

robust economic recovery if small businesses are not generating 

jobs because they account for—people like Mr. Force account for a 

majority of the jobs created in the private sector of this country 

every year. 

And we are not going to have a robust recovery if middle-class 

retirees aren’t buying automobiles and refrigerators and taking 

their family to restaurants and do the things that people can do 

when they have a decent pension, decent income. 

Reconciling and aligning the interests of the employers who need 

to be competitive to be prosperous, the retirees who definitely need 

a guarantee of that income for the rest of their lives, and the taxpayers who absolutely need immunity from any responsibility to 

rescue these funds because that is something we don’t want to do, 

is an achievable goal, and I think we have heard again, many of 

the aspects of how to achieve that goal. 

It involves looking at the PBGC’s premium structure in a fair 

and balanced way. It involves looking at financing vehicles would 

help would help red zone plans, as those Kroger plans did, climb 

to green zone status by taking advantage of lower interest rates 

while they are still with us. 

It involves painful but fair choices within plans to restructure 

who gets benefits when and under what circumstances. I also, by 

the way, believe it involves a reconsideration of bankruptcy code 

and making sure that in bankruptcy, plans are treated fairly in 

their status, which we don’t presently have. 

And finally, I think it includes what you might call a sunny day 

fund where plans that are prospering and wish to make higher contributions than the present ceiling would allow are in fact given 

that opportunity. 

I can never think of a good reason why an ERISA trust should 

not be able to put money away for the retirement or health care 

of its members. I just think anytime somebody wants to do it, we 

ought to encourage them to do that. 

So this was very instructive. 

I say to the chairman, we appreciate the spirit in which he and 

Chairman Kline have approached this problem. We would like to 

do what the stakeholders did in the coordinating committee, which 

is to listen to each other, respect each other’s various points of 

view, and come to a good solution. 

So I thank you for the hearing. I look forward to our continued 

progress in this regard. 

Chairman ROE. Thank you, Mr. Andrews. 

And Mr. Gotbaum, I think laid out the ultimate Catch-22. Director Gotbaum did when he talked about the problem that we are 

looking at. The problem is it is too expensive to get out and it is 

too expensive to stay in. 

That is basically how you described that and I think so that our 

viewers and listeners can understand it, I looked at my own 401(k) 

5 years ago when I ran for Congress and it is a very conservatively 

run plan with mutual funds, index funds, bonds, and cash. It is exactly where it was 5 years ago. 

44 

If—I mean, almost to the nickel of where it is 5 years ago. I 

haven’t touched it, haven’t taken any money out of it, but if I am 

a pension plan and I have to pay benefits out and I don’t have any 

money going in, I haven’t paid any money back into it, there is less 

money there to go up when the market goes up. 

And that is one of the reasons I think these plans are in trouble 

is that they have decreased the amount of money that they have 

even with the market returning. That is why the red zone plans 

are going to have a very difficult time. 

Second thing that happened is this particular recession as severe 

as it was hit certain aspects of the workforce much harder. For instance, Mr. Force, I saw that in my own community where we were 

issuing small community of 600—I mean, 60,000 people, we were 

issuing $200 million a year in building permits and I knew that 

our construction industry was doing very well and then in 2008 or 

2009, I talked to friends of mine that haven’t built a house in 2 or 

3 years now. 

So it affected them dramatically because the retirees that are out 

there are still taking their money out, and I think that pretty much 

lays it out—and Mr. Andrews did a very good job of laying out, I 

think, the solutions for this, and Mr. Perrone, you made a couple 

of great comments, I think, one about the acts of the Federal Reserve. I think that is true, what you said. 

And secondly, I think we should strive in everything we do to 

maintain current recipients their—I mean, you have to. They are 

out there. They are 70 years old. They have worked 30 or 40 years 

in the trades. I think that ought to be the last thing that we do 

and I think we can do that. I agree with you on that. 

The other thing that Mr. Andrews brought up is we haven’t voided the economic cycle. These ups and downs will come and go. They 

have for the 200 and plus years this country has been here. So we 

are going to have another recession sometime along the way hopefully it is not nearly as severe as this one is. So that is why you 

should be able to not over fund, but put some rainy day money 

away so you have those funds available when the market goes 

down. 

I think I have a pretty clear idea about what we need to do. It 

is not going to be easy and I think we will have a consensus both 

sides of the aisle are very—we are very committed to try to make 

this work and we have I think because part of the Pension Protection Act is—some parts of it I think are out in 2014, this Congress, 

the 113th, it is going to be on our shoulders to do something. 

So I want to thank you for being here. I have learned a lot again 

from this, and I appreciate you taking your time to come here. 

With no further comments, the hearing is adjourned. 

[Additional submissions of Chairman Roe follow:] 

Prepared Statement of the U.S. Chamber of Commerce 

The U.S. Chamber of Commerce would like to thank Chairman Roe, Ranking 

Member Andrews, and members of the Subcommittee for the opportunity to provide 

a statement for the record. The topic of today’s hearing—challenges facing multiemployer pension plans—is of significant concern to our membership. 

As sponsors of multiemployer defined benefit plans, a number of Chamber members have a substantial interest in the viability of the multiemployer plan system. 

Funding for multiemployer plans comes entirely from employers, who are at financial risk when a plan faces funding problems. Therefore, funding and accounting 

45 

issues create substantial challenges not just in maintaining the plan but also for 

the employers’ business. 

While all defined benefit plans have been negatively impacted by the financial crisis, certain multiemployer plans have been particularly hard hit as the current financial crisis exacerbates long-term funding problems resulting from shifting demographic trends and financial problems within certain industries. While current law 

requires insolvent employers to pay their share of liability upon withdrawal from 

the plan, most bankrupt employers are unable to realistically meet that liability. 

Therefore, the remaining employers become financially responsible for the retirement liabilities of the ‘‘orphaned’’ retirees. This system results in untenable contribution levels for the remaining employers, which can force them into insolvency 

as well. 

Moreover, in a multiemployer plan, there is joint and several financial liability between all employers in the plan. Therefore, when one employer goes bankrupt, the 

remaining employers in the plan are responsible for paying the accrued benefits of 

the workers of the bankrupt employer. Because of this liability, there is the fear of 

an employer being ‘‘the last man standing’’ or the last remaining employer in the 

multiemployer plan. 

Reform of the Multiemployer Plan System is Necessary. The Chamber supports 

multiemployer funding reform. Without such reform, many employers—including 

many small, family-owned businesses—are in danger of bankruptcy. 

In April, the Chamber released a white paper entitled ‘‘Private Retirement Benefits in the 21st Century: A Path Forward.’’ The paper makes recommendations for 

all retirement plans and includes a special section for multiemployer plans to address the unique challenges faced by them. In that paper, we offered the solutions 

detailed below. 

Withdrawal liability is a great burden that may force employers to stay in multiemployer plans even when it is not economically feasible. The Chamber feels that 

a comprehensive solution must be sought to allow for a more robust multiemployer 

plan system and to maintain equity among contributing employers. 

Another problem arises from the nature of multiemployer plan funding. Benefit 

increases are not anticipated in funding but are often granted at contract renewal. 

These increases often apply not only to active workers, but also to retirees. This 

practice may put the plan into an underfunded situation because the benefit increases cause a ‘‘loss’’ for the year. This loss is generally funded over a long amortization period, such as 20 years. While this additional expense may be projected by 

the plan to be affordable for active employers that are contributing a negotiated contribution rate (usually dollars per hour or a percentage of pay), a withdrawing employer may be immediately liable for its share of the underfunding. 

In order to prevent bankruptcy among remaining employers in multiemployer 

plans and unanticipated bankruptcy on withdrawing employers, comprehensive 

funding reform should focus on allowing plans to be financially solvent on an ongoing basis. Examples of such provisions include, but are not limited to, additional 

tools for trustees to maintain solvency, partitioning plans and promoting mergers 

and acquisitions between certain plans. 

Even for plans that are not at financial risk, changes could ensure that they remain financially viable. For instance, the assumptions used to determine withdrawal liability should be consistent with those used to determine contribution requirements. They should not be more conservative, forcing the withdrawing employer to subsidize active employers. In addition, benefit increases should be moderated. In the past, benefits were increased if the plan became overfunded and, as 

noted above, granted even when the benefit increase would make the plan underfunded. This prevented plans from being able to fall back on extra contributions in 

later years. As a result, any future underfunding would require additional contributions by current employers. Reform efforts should focus on moderating benefit increases so that they are not made simply because the plan is overfunded. One way 

to do this would be to require disclosure of the amount of liability associated with 

benefit increases—not just contribution increases. 

Finally, the procedural rules that allow employers to arbitrate disputes over the 

amount of withdrawal liability require change, at least with respect to small employers. For example, the time frame for requesting arbitration is very short, and 

a small employer, who may not have significant administrative resources, is likely 

to miss it. 

The suggestions above are just examples of steps that policymakers can take. The 

Chamber is committed to addressing multiemployer funding issues and is willing to 

discuss any viable ideas that allow participating employers to remain financially solvent. 

46 

The Chamber Supports the Recommendations of the Retirement Review Commission. On February 19, the Retirement Security Review Commission of the National 

Coordinating Committee for Multiemployer Plans issued a report entitled Solutions 

Not Bailouts. Several members of the Chamber participated in the Commission and 

contributed to the findings of the report. The proposals in the report go a long way 

in addressing certain serious issues in the multiemployer plan system. As such, the 

Chamber fully supports the recommendations and believes that the recommendations can provide a critical foundation for reform of the multiemployer pension system. 

Multiemployer Pension Reform Should Include Limitations on Withdrawal Liability. In addition to the recommendations from the Retirement Review Commission, 

the Chamber believes that additional reforms are needed to address employer concerns. For example, we recommend that limitations be placed on the amount of 

withdrawal liability that an employer can assume. There are many of our members 

who have gotten estimates of withdrawal liability that exceed the net worth of the 

company. Clearly, this is an outcome that was never contemplated when withdrawal 

liability was implemented and should be rectified. 

Limiting withdrawal liability is one example of additional reforms that will be 

needed. The Chamber anticipates that there will be additional recommendations as 

we move forward with these discussions. 

Reform of the Multiemployer System is NOT a Union Bailout. As mentioned 

above, contributions to multiemployer plans are funded entirely by employers, not 

unions. Therefore, it is employers at financial risk, not unions. Moreover, reforms 

to multiemployer plans have no financial impact on unions or their activities. Misleading characterizations, such as this one, hinders progress that is essential to implement much-needed reform. 

Without a real reform to the multiemployer system and resolutions to the underlying problems, more employers will be forced into bankruptcy and more workers 

will be left without a secure retirement. We stand ready to work with Congress and 

all interested parties to resolve these issues as soon as possible. Thank you for your 

consideration of this statement. 

Prepared Statement of the National Electrical Contractors Association 

The National Electrical Contractors Association (NECA) appreciates the opportunity to submit a statement for the record ahead of the Subcommittee on Health, 

Employment, Labor and Pensions of the House Education and the Workforce Committee’s hearing entitled ‘‘Challenges Facing Multiemployer Pension Plans: Reviewing the Latest Findings by PBGC and GAO.’’ NECA commends the Committee for 

holding a hearing on this important subject to examine the health of the multiemployer pension system, analyze the impact of the Pension Protection Act of 2006 and 

to discuss short term and long term strategies moving forward. 

NECA is the nationally recognized voice of the electrical construction industry, 

comprised of over 80,000 electrical contracting firms, employing over 750,000 electrical workers and producing an annual volume of over $125 billion in electrical construction. NECA represents 119 U.S. chapters in addition to several affiliated international chapters around the world and is signatory to 359 local unions. NECA 

member companies contribute to both a national and local pension plans. 

The construction industry has a substantial stake in the health and welfare of 

multiemployer pension plans. The industry comprises 54 percent of the total number 

of plans and provides coverage to 37 percent of the 10 million employees participating in multiemployer plans. 

As businesses around the country begin to recover from the recession, the economic recovery in the construction industry remains stagnant. We have been 

plagued with uncertainty in the marketplace, high unemployment, an aging workforce, and unsustainable pension contributions, coupled with the significant investment losses and volatile equity markets. All of these forces have combined to create 

a perfect storm that has put many multiemployer pension plans at risk. At a time 

when competitive circumstances require NECA contractors to be flexible in their 

cost and crew structure, their pension funding challenges have a tremendous impact 

on the day-to-day decisions of NECA members and their ability to stay in business. 

According to its 2012 exposure draft, the PBGC paints a bleak picture for multiemployer pension plans as their 10-year projections of the multiemployer program 

nearly all result in declines. In fact, according to its recent report to Congress dated 

January 22, 2013 entitled, ‘‘PBGC Insurance of Multiemployer Pension Plans Report,’’ the agency states that it is ‘‘at risk of not having the tools to help sustain 

multiemployer plan or the funds to continue to pay benefits beyond the next decade 

47 

under the multiemployer insurance program.’’ NECA is pleased to report to the 

Committee that the experience for the vast majority of the electrical construction 

industry’s pension plans projects a decidedly different and positive story. 

Since 1946, NECA contractors have contributed to the National Electrical Benefit 

Fund (NEBF), a viable pension plan which benefits participants, retirees and surviving spouses. This successful and well-managed plan is the third largest TaftHartley Pension Plan in the United States. It serves over 502,000 participating individuals, with 119,120 of those individuals receiving either a retirement or surviving 

spouse benefit. The Plan has over 8,000 contributing employers, resulting in approximately 370,000,000 hours worked annually in covered employment. In 2010, 

NECA companies contributed approximately $370 million to the National Electrical 

Benefit Funds (NEBF) with total assets over $11 billion. This total does not include 

contributions to local pension plans whose aggregate value is in excess of $15 billion. According to NECA’s Defined Benefit Plans Study, the NEBF has remained 

well-funded through the great recession of 2008 and since the inception of the financial status zones under the Pension Protection Act of 2006, the NEBF has and continues to be in the Green (Safe) Zone. The NEBF is funded 84.7 percent of all accrued benefits which means that the plan still carries a certain amount of unfunded 

vested liabilities. NECA attributes the NEBF’s current secure status to the conservative, professional management of the plan and highest level of responsibility for 

those they serve. More specifically, the NEBF has a ‘‘benefits policy’’ that was put 

in place in the late 1980’s that prohibits increases in the benefit level if a withdrawal liability exists. This rule has undoubtedly created a level of stability and security with the plans funding levels. 

Approximately 50 percent of NECA’s member companies contribute to 112 local 

or regional defined benefit plans that exist in 165 local areas throughout the country and cover more than 174,000 workers. Based on current market values, 75 percent of the assets of all these plans are held in plans that are in the green zone, 

and 70 percent of the participants are covered by green plans. 

As laid out in NECA’s Defined Benefit Plan Study, the data indicates that a serious but not overwhelming problem exists for our local plans. However, permanent 

reform measures are needed to ensure all employees of NECA contractors are secure 

in their retirement. 

Comprehensive pension reform is NECA’s top priority for the 113th Congress, as 

the multiemployer funding rules contained in the Pension Protection Act of 2006 

(PPA) will sunset on December 31, 2014. Accordingly, NECA has been preparing to 

address this issue for nearly two years, discussing long term solutions with NECA 

members that serve as trustees on local multiemployer pension plans. NECA has 

also entered into a partnership sponsored by the National Coordinating Committee 

for Multiemployer Plans (NCCMP), the Retirement Security Review Commission, a 

broad coalition of labor and management stakeholders (which includes NECA and 

the International Brotherhood of Electrical Workers), subject matter experts, and 

actuaries tasked with crafting a realistic proposal that provides significant recommendations for comprehensive pension reform. 

The NCCMP Retirement Security Review Commission Report presents tools that 

will ensure these plans will have the tools available to provide a reliable retirement 

benefit to the millions of Americans in these plans while and enabling the employers who fund them to remain strong contributors to the national economy. The proposal offers recommendations that address the deeply troubled plans heading toward insolvency, includes technical provisions that will improve the current system 

and offers a new flexible plan design options aimed to reduce employers risk and 

eliminate withdrawal liabilities. 

Over the past decade, Congress has enacted legislation that provided some relief 

to multiemployer pension plans and helped companies recover losses incurred as a 

result of the financial crisis. However, more changes are necessary to improve the 

health and viability of these plans. NECA is thankful this Committee is providing 

a platform for a meaningful discussion addressing the problems with the current 

multiemployer pension system and the opportunity to tackle comprehensive pension 

reform. NECA appreciates the opportunity to submit this statement for the record 

in conjunction with this hearing and looks forward to continuing to work with the 

Committee on this important issue. 

[Questions submitted for the record and their response follows:] 

48 

U.S. CONGRESS, 

Washington, DC, April 17, 2013. 

Hon. JOSHUA GOTBAUM, Director, 

Pension Benefit Guaranty Corporation, 1200 K Street, NW, Washington, DC 20005. 

DEAR DIRECTOR GOTBAUM: Thank you for testifying at the March 5, 2013 Subcommittee on Health, Employment, Labor, and Pensions hearing entitled, ‘‘Challenges Facing Multiemployer Pension Plans: Reviewing the Latest Findings by 

PBGC and GAO.’’ I appreciate your participation. 

Enclosed are additional questions submitted by committee members following the 

hearing. Please provide written responses no later than May 1, 2013, for inclusion 

in the official hearing record. Responses should be sent to Benjamin Hoog of the 

committee staff, who can be contacted at (202) 225-4527. 

Thank you again for your contribution to the work of the committee. 

Sincerely, 

PHIL ROE, Chairman, 

Subcommittee on Health, Employment, Labor, and Pensions. 

QUESTIONS SUBMITTED BY CHAIRMAN ROE

1. The Pension Benefit Guaranty Corporation’s (PBGC) report on its multiemployer insurance program states that its Pension Insurance Modeling System will 

be modified in the future. Apparently, the current model overestimates both the 

number of active participants and per-capita contributions. So, the reality could be 

worse than the situation you presented in your testimony. When and how will these 

projections be revised? 

2. The Employee Retirement Income Security Act of 1974 (ERISA) requires the 

PBGC to examine whether premiums are sufficient to support the benefits guarantee; if not, the PBGC is required to make recommendations to Congress. The Pension Protection Act of 2006 (PPA) also invited the administration to make recommendations in the context of the PPA report on the multiemployer system. These 

reports were submitted to Congress on January 29, 2013; however, neither contained recommended changes. Do you expect PBGC to make suggestions in the future? 

3. Throughout your testimony, you acknowledge some multiemployer plans face 

significant funding problems. You state that ‘‘the failure of one plan and resulting 

imposition of withdrawal liability on its contributing employers can have a ripple 

effect on many other plans.’’ How quickly could this ripple effect take hold, causing 

severe funding problems for many more plans? 

QUESTIONS SUBMITTED BY CONGRESSMAN ROBERT C. ‘‘BOBBY’’ SCOTT (D-VA)

1. What recommendations do you have for limiting the ultimate expense for an 

employer with a small portion of a multi-employer pension plan fund in a scenario 

where an employer with a major portion of that fund goes under? 

2. What recommendations do you have regarding risk-based premiums, where 

funds in the red zone pay higher premiums than those in the yellow zone, and in 

the same way, funds in the yellow zone pay higher premiums that those in the 

green zone? 

3. What is the present limitation on what an employer contributes to its multiemployer pension fund? What recommendations do you have for a contribution 

amount in excess of what is required, in order to offset funding challenges that a 

plan may face in the future? 

49 

Director Gotbaum’s Response to Questions Submitted for the Record 

QUESTIONS SUBMITTED BY CHAIRMAN ROE

1. The Pension Benefit Guaranty Corporation’s (PBGC) report on its multiemployer 

insurance program states that its Pension Insurance Modeling System will be modified in the future. Apparently, the current model overestimates both the number of 

active participants and per-capita contributions. So, the reality could be worse than 

the situation you presented in your testimony. When and how will these projections 

be revised? 

Like all models of complicated systems, PBGC’s models are projections—the actual results are never exactly what was projected. Sometimes they turn out better 

and sometimes worse. At this point, we cannot say for sure whether the actual developments will be better or worse than our projections, but it is certainly true that 

there are many reasons why they could be worse. 

We believe that PBGC’s pension insurance modeling systems—the Single-Employer Pension Insurance Modeling System (SE-PIMS) and the Multiemployer Pension Insurance Modeling System (ME-PIMS)—are the best tools available by far for 

information and projections concerning the defined benefit pension-plan universe. 

Furthermore—although the results of those projections are disturbing—most analysts in the actuarial and economic communities agree that PBGC’s models remain 

the best tools available. 


79502-1.eps
50 

1Over the years, SE-PIMS has been reviewed and discussed in published reports. Several 

years ago PBGC provided the model to the Society of Actuaries, which reviewed it and has 

begun using it in their own published reports. 2ME-PIMS was designed in 2007, before implementation of the Pension Protection Act of 2006 

(PPA) changes for multiemployer plans. PBGC is revisiting certain ME-PIMS assumptions to 

better reflect current experience under PPA as a basis for ME-PIMS projections, but the ERISA 

agencies obtain information about how plans are responding to PPA only gradually. 3MAP-21, sec. 40233(a), states: ‘‘The Pension Benefit Guaranty Corporation shall contract 

with a capable agency or organization that is independent from the Corporation, such as the 

Social Security Administration, to conduct an annual peer review of the Corporation’s SingleEmployer Pension Insurance Modeling System and the Corporation’s Multiemployer Pension Insurance Modeling System. The board of directors of the Corporation shall designate the agency 

or organization with which any such contract is entered into. The first of such annual peer reviews shall be initiated no later than 3 months after the date of enactment of this Act.’’ 

That does not mean that we cannot and will not review them to make them even 

better. We are doing so and will continue to do so.1 We will continue to work to 

improve them as we better understand trends in the economy and in pension practices and as our information improves.2 PBGC commissioned an external review of 

ME-PIMS by an outside consulting firm with substantial multiemployer experience 

and received recommendations for changes in September 2012. We are now reviewing and incorporating the consultant’s suggestions for improvements. Some of the 

changes will be implemented in the coming year and others in future years. We will 

continue to analyze the issues using ME-PIMS throughout this process, as it remains the best tool for doing so. 

The Moving Ahead for Progress in the 21st Century Act (MAP-21) requires an additional independent annual peer review of PBGC modeling systems.3 PBGC responded by contracting for a review by the Social Security Administration and outside consultants. We will incorporate the results of those reviews in future improvements. 

2. The Employee Retirement Income Security Act of 1974 (ERISA) requires the 

PBGC to examine whether premiums are sufficient to support the benefits guarantee; 

if not, the PBGC is required to make recommendations to Congress. The Pension Protection of Act of 2006 (PPA) also invited the administration to make recommendations in the context of the PPA report on the multiemployer system. These reports 

were submitted to Congress on January 29, 2013; however, neither contained recommended changes. Do you expect PBGC to make suggestions in the future? 

As I testified before the Committee, PBGC can and will suggest how premiums 

could be reformed. However, since the future of PBGC’s program is tied so closely 

to other potential changes in the multiemployer system, we think the right thing 

is to do so as part of the broader review of potential changes for multiemployer 

plans as a whole. Discussions for further reforms should start with consideration of 

the compromise proposals now being developed jointly by the businesses and unions 

that form the multiemployer system. PBGC and the other ERISA agencies look forward to working with Congress and the multiemployer community as this important 

dialogue evolves. 

3. Throughout your testimony, you acknowledge some multiemployer plans face significant funding problems. You state that ‘‘the failure of one plan and resulting imposition of withdrawal liability on its contributing employers can have a ripple effect 

on many other plans.’’ How quickly could this ripple effect take hold, causing severe 

funding problems for many more plans? 

Any possible ripple effect depends upon many factors. No one knows how quickly 

employers might respond to troubles in severely distressed plans by withdrawing 

from healthier ones. We do know that medium- and large-sized employers often participate in many plans. If the contribution burdens in one or more of these plans 

become so great that they force an employer out of business, that employer’s participation in some plans may be significant enough to cause a mass withdrawal of all 

employers from those plans. For these reasons, among others, it would be better to 

address the problems facing the multiemployer system sooner rather than later. [0] 

QUESTIONS SUBMITTED BY REPRESENTATIVE SCOTT

1. What recommendations do you have for limiting the ultimate expense for an employer with a small portion of a multiemployer pension plan fund in a scenario 

where an employer with a major portion of that fund goes under? 

A contributing employer that remains in a plan after another employer goes out 

of business may become responsible for the unfunded benefit liabilities attributable 

to participants of the other employer. This could, for example, increase the contribVerDate Nov 24 2008 10:38 Jan 13, 2014 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 G:\DOCS\113TH\HELP\113-8\79502.TXT DICK
51 

uting employer’s funding costs under the plan. In addition, if the contributing employer later withdraws from the plan, it could increase the employer’s withdrawal 

liability. However, this is subject to several limitations: de minimis amounts are excused; annual withdrawal liability payments are limited to the employer’s highest 

contribution rate (and average contribution units) in the prior 10-year period; and 

payments are owed for no more than 20 years (unless there is a mass withdrawal). 

The effects of the loss of a major employer may be offset by other actions as well, 

such as the plan’s merger with another plan that has a stronger employer base. 

Current law also provides for the partition—or payment by PBGC—of liabilities (up 

to the maximum guarantee) attributable to employers that withdrew from the plan 

due to bankruptcy. This tool has been rarely used and PBGC lacks the financial resources to help many plans directly in this way. 

2. What recommendations do you have regarding risk-based premiums, where 

funds in the red zone pay higher premiums than those in the yellow zone, and in 

the same way, funds in the yellow zone pay higher premiums than those in the green 

zone? 

Even with the premium increases under the Moving Ahead for Progress in the 

21st Century Act (MAP-21), PBGC projects that current PBGC multiemployer plan 

premiums will eventually be insufficient to support the guarantee and the multiemployer insurance program. Premium reforms are a necessary part of any solution 

to both help preserve plans and provide the safety net for failed plans that ERISA 

intended; they should be analyzed as part of and in the context of the broader 

changes for multiemployer plans. 

3. What is the present limitation on what an employer contributes to its multiemployer pension fund? What recommendations do you have for a contribution amount 

in excess of what is required, in order to offset funding challenges that a plan may 

face in the future? 

These are issues on which PBGC regularly consults with the Treasury Department for their expertise. 

As background, we note that at the end of the 1990s, many plans were considered 

‘‘fully funded’’ so that no deductible contributions were permitted. To protect the deductibility of negotiated contributions, such plans were often compelled to increase 

benefits, which diminished the cushion of overfunding (plans could also decrease 

contributions, but this was less common). At that time, the limit on deductible contributions was generally 100% of the accrued liability determined under the plan’s 

funding method (alternative determinations limited even that maximum level). 

Congress loosened the rules marginally in 2001, and raised the deductible limit 

still further under the Pension Protection Act of 2006 (PPA), which allowed employers to make deductible contributions as long as assets are less than 140% of current 

liability. (During the 2000s, current liability, which is based on 30-year Treasury 

bond rates, has been significantly higher than plans’ accrued liability, which is determined using higher assumed rates of return.) Increases in the deductible limit 

in the 2000s decade came too late, however, as plan underfunding levels increased 

rapidly. By 2010, overfunded plans covered less than 1% of all multiemployer participants. 

[Whereupon, at 11:17 a.m., the subcommittee was adjourned.] 

Æ